China turns PP net exporter for first time in March amid capacity expansion

China's commitment to self-sufficiency in the petrochemicals industry has led the polypropylene market to witness a new wave of capacity expansions since 2019, industry sources said, but receding domestic demand amid a subdued macroeconomic climate is pushing Chinese suppliers to seek alternative homes for its surplus cargoes.

In a historic first, China flipped into a net PP exporter in March, marking the highest outflows on record, based on customs data back to 2012.

In March, PP outflows surged by 87.6% month on month and 88.6% on the year to 312,400 mt, outpacing inflows of 295,441 mt, up 28.45% on the month but down 10.58% year on year, according to latest data from the China Customs Statistics Information Center.

"This milestone of China's PP exports surpassing its imports in March 2024 is a significant achievement toward its strategic goal of enhancing self-sufficiency," said Feng Shaohua, Executive Director of Polymers & Plastics at S&P Global Commodity Insights.

Feng noted that China has significantly expanded its PP capacity over the last five years, with virgin PP capacity reaching 47 million mt/year, while consumption is estimated to reach 39 million mt/year in 2024.

The rise in China's production capacity over the years has worked to weigh on domestic prices. On an ex-works basis, the Platts-assessed PP Raffia Chinese domestic prices have averaged Yuan 7,422.08/mt in the year through May 9, losing 21.6% or Yuan 2,044.77/mt from the same period in 2018, Commodity Insights data showed.

Chinese PP heads south

The rise in China's PP exports in recent years has undoubtedly shifted market and pricing dynamics, particularly in the Southeast Asia region, sources said.

"With new capacities coming online, Chinese PP producers will explore more export markets, particularly in developing countries geographically close to China, price-sensitive markets, or those with free-trade agreements with China," Feng said.

China's PP exports to Vietnam surged by 145.7% on the month and 127.8% on the year to 49,357 mt in March, customs data showed.

Vietnam emerged as China's largest PP trading partner in March, accounting for approximately 15% of all exports in the month, followed by Brazil and Bangladesh, which took 29,039 mt and 24,519 mt, respectively, the data showed.

Elsewhere in the region, Chinese PP cargo exports to Thailand also grew by 74.8% month on month and 27.2% year on year in March to 15,235 mt.

"Before July 2023, we did not see as much Chinese PP in the local Thai market, but now due to their large capacity and economies of scale, we're seeing more and cheaper cargo from Chinese factories enter our customers' warehouses," a Thai producer said.

Market sources said that the influx of competitively priced Chinese materials has lengthened the market, exerting downward pressure on prices.

Platts assessed CFR Southeast Asia PP raffia and injection prices, down by $35/mt on the year at $980/mt as of May 8, Commodity Insights data showed.

China retains dual position despite new PDH capacities

Although China has emerged to be a regional exporter in recent years, Feng noted that the country will continue to import PP, especially impact copolymers, in spite of expectations of fresh PP supplies to emerge on the back of expansions in the upstream feedstock propylene arena.

A detailed analysis of the customs data by Commodity Insights revealed that PP exports were predominantly driven by PP homopolymer -- commonly traded in raffia or injection grades -- due to its relatively low cost and ease of production. PP is typically produced through naphtha steam crackers or propane dehydrogenation units.

Meanwhile, PP copolymer, particularly the impact copolymer grade, accounted for 81,418 mt, or 27.5%, of the total PP imports in March 2024. Although PP copolymer is consumed in smaller quantities -- as it is expensive and challenging to produce -- its application in more demanding uses drives China's PP imports.

According to Commodity Insights data, in China, approximately eight new propane dehydrogenation (PDH) units came online in 2023, contributing to an additional 4.8 million mt/year of propylene production capacity and requiring up to 5.76 million mt/year of propane feedstock at full capacity.

Approximately eight more PDH plants, with a total propylene capacity of 4.46 million-4.86 million mt, are scheduled to commence operations in 2024, with five more plants announced for startup in 2025.