Polypropylene Downstream Price Follow-Up Momentum Insufficient, Overall Profit Declines

Around the New Year's Day holiday, the polypropylene market saw a turning point, with prices continuously climbing in the first half of January. The mainstream wire drawing grade's benchmark price rapidly rose from around 6200 RMB/ton at the beginning of the month to over 6500 RMB/ton, an increase of over 5%. Downstream industries showed increased enthusiasm for stocking up, but due to insufficient order follow-up, the market's upward momentum was limited, and overall profits experienced a noticeable decline.

Geopolitical news from Venezuela and Iran boosted market sentiment recently. This week, upstream raw material prices such as crude oil, propane, and propylene showed strong performance, strengthening cost-side support. From a fundamental perspective, upstream shipments are good, and producers have oversold significantly, so there is no pressure on the upstream in the short term. With the recent increase in spot prices, downstream restocking intentions have strengthened, and the fundamentals have improved significantly. As production profits gradually recover, PDH plant shutdowns are delayed, increasing supply-side pressure. Downstream operations face seasonal declines before the Spring Festival, and the market is expected to mainly digest the gains, with reduced upward momentum. As of the 15th, the polypropylene basis was at -142 yuan/ton. Improved fundamentals provided further support to the market, and polypropylene futures continued to strengthen. Strong market sentiment to cover short positions and increased spot transactions drove market prices to rise continuously, with the basis strengthening to -200 yuan/ton. Crude oil ended its six-day rally on Thursday, and polypropylene's continued upward momentum weakened, leading to a mid-session pullback, with the basis contracting compared to the beginning of the week.

Raw material prices continue to rise; downstream buyers' willingness to accept goods increases.

The continued rise in raw material prices has stimulated downstream restocking to some extent. Recently, the number of raw material inventory days in the main downstream industries of polypropylene has increased. However, due to limited follow-up in end-user demand, overall order follow-up in downstream industries is restricted, and operating rates have not changed significantly.

According to the latest data, the average operating rate of domestic downstream polypropylene industries (including eight sectors: plastic weaving, injection molding, BOPP, PP pipe, PP non-woven fabric, CPP, transparent PP, and modified PP) decreased by 0.07 percentage points to 52.53% this week.

Table 1: Comparison of Weekly Operating Rate Changes in Downstream Polypropylene Industries

Data source: Longzhong Information

Approaching the Spring Festival, traditional terminal sectors such as packaging, building materials, and daily necessities are entering a phase of shutdown and inventory preparation, causing industry operating rates to decline. Terminal enterprises are generally focused on depleting existing inventories, with a significant reduction in the willingness to procure new orders. The traditional polypropylene product industries, such as plastic woven bags and injection molding, are affected, forcing units to reduce operating loads. Concurrently, low temperatures in the north affect construction and transportation, while some enterprises in the south arrange for employees to return home early. Labor shortages and rising logistics costs are forcing small and medium-sized enterprises to shut down early, leading to a significant decline in operating rates. However, demand for modified PP in high-end manufacturing sectors such as new energy vehicles, electronics & electrical appliances, and home appliances remains robust, with related orders scheduled for production until the end of January, supporting a counter-trend increase in the operating load of the modified PP industry.

Limited downstream order follow-up; significant contraction in industry profits.

From the perspective of demand data changes, the average order level of the main downstream industries of polypropylene has limited follow-up. Although it is generally higher than the same period in previous years, it has decreased compared to November-December.

Here's the English translation of the provided text: Looking at the order situation in major downstream industries separately: Agriculture and construction are in their traditional seasonal off-season, and the terminal demand in the plastic woven industry is weak, with reduced demand for fertilizer bags, cement bags, etc.; BOPP sample order days are up +3.94 days compared to the previous period. The cost side provides strong support, and film prices rise accordingly. Downstream users and traders are placing orders appropriately, while some are resistant to high prices. Film companies are continuously following up on new orders; The average order days for PP non-woven fabrics are flat. Terminal demand has slowed down recently, and new orders from downstream are weak. With no significant positive factors for the terminal, the industry average order remains at 9.95 days. Overall, the continuous rise in raw material prices stimulates the enthusiasm of downstream users to receive goods, and the raw material inventory of factories has relatively increased. However, the order performance is still generally weak, making it difficult to continuously support the trend of raw material prices.

Overall, affected by limited order follow-up, although raw material prices have continued to rise, the increase in product prices has been restricted, resulting in a relatively significant narrowing of profits in the polypropylene downstream industry. Looking ahead, as polypropylene prices rise to a temporary high point, downstream pre-holiday stocking is gradually completed, and narrowing product profits suppress the downstream's willingness to continue accepting goods. Under pressure from sales, the short-term polypropylene spot price center is at risk of declining from its high level.