Local PP and PE markets in China regain stabilization after hitting multi-year lows

The domestic PP and PE market in China has been embarking on the drastic downtrend since the market returned from the extended Lunar New Year holiday as the COVID-19 outbreak partially shutdown trading activities here.

The market sentiment starts to show improvement this week as manufacturers and logistics providers gradually come back to work. Data from CommoPlast recorded spot offers for both PP and PE at roughly CNY100-150/ton ($15-22/ton) higher at the time of this report compared to the beginning of the week and yet the number of real transactions is rather satisfactory. Such development suggests that the market might need a shorter time to restore its normal operations.

Inventories Digestion

Before Chinese players left their desks for the weeklong Lunar New Year holiday, the total PP and PE inventories at Sinopec and CNPC’s warehouses were reported at 570,000 tons as of 20 January 2020. The number jumped 97.3% by the time local traders resumed working on 3 February 2020, to 1.125 million tons. 

Over the past two weeks, multiple plants in China have either shut down or lowered operation rates to ease the inventory pressure until local manufacturers could resume working following the advice from the government. On Monday, 17 February 2020, the inventories hit a record high level of 1.62 million tons, casting more doubt on the recovery process of the market.

“The situation has altered considerably in the past three working days. More logistics providers are resuming, and more manufacturers are restarting, though operations remain at low rates,” a market source added. 

At the time of this report, total stocks at Sinopec and CNPC’s warehouses have digested 280,000 tons in total from Monday, underlining the fact that the market is now active again.

“We need more time to increase the operations rates because many of our workers are still under quarantine period. At the moment, we could only be able to fulfill urgent orders,” a PP container manufacturer informed. 

Market Outlook 

While local sentiment has improved significantly compared to the beginning of the month and could continue to pick up in the coming weeks as more companies are expected to come back to work, there is still a strong sense of caution in the market. 

Sources said that especially for PP, the aggressive startup at Zhejiang Petrochemical and Hengli Petrochemical might limit the extent of any major price hike in the near term. In addition, end-users could take up to mid to end of March to fully restore the run rates.

In the meantime, supply for PE remains relatively tighter than PP and converters in the agricultural film sectors are scouting for competitive LDPE and LLDPE film cargoes in the Northern China area to make additional replenishment. 

On another note, there has been report that buyers are facing a longer time to clear out cargoes form custom following a heavy pile up throughout the logistics restriction period. Many overseas sellers decided to offer cargoes to China with very far LSD to avoid clashing with the current port situation.