China, Southeast Asia PP prices at over 2-year lows on oversupply

Chinese and Southeast Asian polypropylene prices slumped to its lowest in over two years, as long-running demand issues in the downstream are compounded by higher domestic and import supplies.

Platts assessed PP Raffia CFR Far East Asia down $25/mt on the week at $870/mt Nov. 2, its lowest since June 5, 2020, when it closed at $860/mt, S&P Global Commodity Insights data showed. Similarly, Platts PP Raffia CFR Southeast Asia dropped $55/mt week on week to $900/mt Nov. 2, its lowest since June 17, 2020, when it closed at $895/mt.

Chinese, or CFR FE Asia, prices have been falling on a host of demand-sapping developments over the past few weeks. Prices were buoyant in early October as replenishment activity was high after China's Golden Week holidays, but optimism was short-lived as Chinese authorities signaled at the 20th Communist Party of China National Congress over Oct. 16-22 that the country would persist with its longstanding zero-COVID strategy. In addition, domestic supply increased as turnarounds at some of the country's plants concluded.

The oversupply situation worsened in late October, as Middle East and South Korean suppliers dropped offer levels aggressively due to inventory pressures. Platts PP Raffia CFR FE Asia fell 10.3% from $970/mt on Oct. 10 to $870/mt on Oct. 31, S&P Global data showed.

China's plant operation rates were last heard to have averaged at around 90%, with sources saying that some suppliers were unwilling to reduce operation rates soon after returning from turnaround.

In Southeast Asia, prices have tumbled on aggressive selling, particularly to Vietnam, which has been suffering from a currency devaluation and low converter run rates. Meanwhile, the country's high refinery run rates amid fuel shortages kept domestic PP supplies ample, sources said. Investor confidence was rattled in October as financial institutions tightened lending requirements, leading some trading firms to sell their stocks at lower prices to maintain cash flows, some sources said.

The market in China and Vietnam have also affected buying in Indonesia and Thailand despite domestic supply levels being lower due to plant shutdowns and maintenance.

"Middle East producers cannot shift their products to Europe with their converters facing high energy costs, so we have been seeing them allocate more products to Thailand, and expect this trend to continue," a Thailand-based source said.

Looking ahead, Chinese sources expected trading in first-half 2023 to start slow due to Lunar New Year celebrations in January, with some industry players stating that factories will start winding down operations from Jan. 1, 2023. Although some short-term upsides may be possible should crude oil prices rise over the winter months, sources noted that long-term recovery prospects rest on the return of Chinese consumption.

"The previous set of economic stimuli in China did not address the COVID policies, which is the largest limiter of economic growth now," a source said. "A new, different set of economy-focused policies must be introduced; otherwise, demand will be kept low."