I. Global New Capacity

By the end of 2017, the global polypropylene production capacity, including the mainland of China, will be 83.5 million tons. In 2018, the global new production capacity will be about 2.81 million tons. By the end of this year, the global polypropylene production capacity will be about 86.31 million tons, an increase of 3.4%. In 2019, the global production capacity of polypropylene increased by 8.53 million tons, and by the end of 2019, the global production capacity of polypropylene reached 94.84 million tons, an increase of 9.9%.

II. China’s New Capacity

At present, 27 petrochemical plants have been planned to put into operation, with an estimated additional capacity of 11.5 million tons. The next three years will be the blowout period of polypropylene production capacity.

III. Oil prices

1. Trend of WTI and Brent Oil

(1) The demand for refined oil in the United States is lower than that in the same period last year. In the four weeks ending May 31, 2019, the total demand for refined oil in the United States averaged 11,000 barrels a day, 0.6% lower than the same period last year. Vehicle gasoline demand averaged 9.353 million barrels in four days, 1.3% lower than the same period last year. Distillate oil demand averaged 3.888 million barrels in four days, 0.8% lower than the same period last year. The average four-day demand for kerosene-based aviation fuel is 2.0% higher than that of the same period last year.

(2) The operating rate of U.S. refineries has increased, crude oil imports have increased sharply, U.S. crude oil stocks have increased to their highest level since July 2017, and gasoline and distillate stocks have also increased.

(3) U.S. crude oil exports have increased substantially. As of May 31, 2019, U.S. crude oil exports averaged 3.298 million barrels a day, down 19,000 barrels a day from the previous week and up 1.584 million barrels a day from the same period last year.

Overall, supply exceeds demand, and crude oil trend is predicted to oscillate downward from July to August.

2. Propylene Price Trend

Propylene prices have fallen in the past six months. From February 2019 onwards, it shook between 6750 and 7300. PP start-up rate rebounded somewhat in April-June, but the overall level is still low, and petrochemical stocks maintain a reasonable level, supply-side pressure is not large; demand is about to enter the lowest season, the current market turnover is cool, but demand has fallen to a low point, and after the price plunge, the attractiveness of the middle and lower reaches has gradually increased, PP continues to fall in limited space. Overall, PP is empty. The recent sharp drop in oil prices has accelerated the decline of PP. Short-term decline is still dominant, but the space below 8000 is not big. It is expected that the decline will gradually stop to bottom in the later period.

IV. Import and Export Quantity of Polypropylene in 2019

From 2017 to 2018, the demand for new materials increased due to the national ban on waste plastics, which also contributed to the increase of imports to a certain extent. In recent years, domestic imports have gradually become polarized, mainly low-end products with price advantages and high-end special materials with competitive advantages. At present, domestic petrochemical enterprises are increasing research and development of high-end special materials to reduce domestic import dependence. It is estimated that high-end imports will not decline in recent years.

Petrochemical Inventory

Affected by the Dragon Boat Festival holidays, Petrochemical polyolefin stocks broke through the 900,000 mark again, with 920,000 tons on Monday, an increase of 90,000 tons over the same period last week and 160,000 tons over the same period last year. The downstream demand continues to be weak. In recent years, the domestic new overhaul is on the low side, the start-up rate has increased slightly, and the depot of petrochemical industry has slowed down. However, in July-August, there are still a lot of equipment maintenance in China, which is conducive to inventory digestion. Later, the focus is on the digestion of petrochemical inventory.

6. Start-up rate of polypropylene in China

From 2016 to 2018, the new polypropylene plant grew moderately, and the growth rate of production gradually decreased. The start-up rate of polypropylene industry stabilized at about 90%, and the start-up rate reached 93.26% in the whole year of 2018.

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Since mid-late May 2019, the number of new PP overhaul devices has decreased, the number of restart devices has increased, and the overhaul intensity has weakened. The starting rate of PP has rebounded to over 85%. Recently, the starting rate of PP has decreased slightly in Xuzhou Haitian and Lianhong Group, and it is still near 85%. Although the supply pressure is not high, the supply side profit has weakened.

VII. Downstream Demand Analysis

The figure below shows the proportion of PP consumption in recent years. Wire drawing accounted for 36.43% and copolymer injection moulding accounted for 20.43%. Secondly, fiber and homopolymer injection moulding were 11.47% and 11.37% respectively.

(1) Wire drawing is mainly used in plastic products. The daily container bags, woven bags, food bags and transparent bags belong to PP wire drawing products. Since the implementation of the domestic environmental protection policy in 2017, the demand for cement and building materials packaging has been declining, and the plastic knitting industry has been greatly impacted. The output growth of bulk products is limited, such as: China’s total grain output is 1235.8 billion kg, 0.3% higher than the previous year; the output of synthetic resin is 83.78 million tons, an increase of 4.5% over the previous year; the output of chemical fertilizer is 6.65 million tons, a decrease of 26% over the previous year; and the output of cement is 2.316 billion tons, a decrease of 0.2% over the previous year.

(2) PP injection plastics are mainly used in small household appliances, toys, washing machines, automotive parts and so on. Among them, automobile sales fell 2.8%, hippocampus automobile sells houses to save themselves, Beijing Hyundai shuts down factories, Shenlong automobile layoffs 2,000 people, downstream dealers profit loss increased from 11.4% to 39.3%.

As for household appliances, it is difficult for the household appliances industry, such as color TV, refrigerator and washing machine, to catch up with the economic growth because of the tightening policy of real estate. With the intensification of competition, the decline of household appliances sales conforms to the current market logic. In 2018, the household appliances market reached 810.4 billion yuan, an increase of 1.9% year on year, but the growth rate dropped sharply.

(3) PP fibers. Mainly used in decoration, clothing and other fields, since the implementation of the second-child policy in 2011, downstream wet towels, diapers and other maternal and infant supplies have increased sharply, and domestic fiber materials are in short supply. According to statistics, the global demand for fibers will continue to grow substantially, and the composite annual growth rate is expected to be 2.6% from 2017 to 2025. Therefore, the downstream demand for PP fibers will increase in the later period.

Overall, downstream demand growth is not significant, and there is a downward trend. Under the influence of large-scale products, automobiles and household appliances, it is estimated that the downstream demand will not increase in 2019.

VIII. Profit Analysis of Polypropylene

1) In May, the gross profit of oil-based PP production enterprises was significantly lower than that of last month, with an average gross profit of 487 yuan/ton, a decrease of 46.37% annually compared with that of last month. Major trade frictions between China and the United States have intensified to curb oil prices, which have declined narrowly this month.

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(2) The average profit of coal-based PP in May was 737 yuan/ton, down 31.51% from last month. The main reason is that the cost of coal is 0.71% higher than that of last month, but the price of coal-based PP is obviously falling, which is 3.35% lower than that of last month. The price of coal-based PP is falling, but the cost of coal is rising, so the profit margin is reduced.

(3) The average profit of methanol-to-polypropylene production in May is 324 yuan/ton. With the heat of the weather, the downstream demand of traditional terminals is difficult to boost.

The average profit level of PDH in May was 1653 yuan/ton, up 19.44% from last month. The average price of imported propane this month was US$497 per ton, down 73 US$per ton from the average price last month, resulting in a 7.78% drop in costs.

In May, the profit of PP from propylene production increased slightly. The average profit level in the month was 503 yuan/ton, down 380 yuan/ton from the previous month, an increase of 43.04%. The average price of propylene this month was 7004 yuan/ton, which was down from last month by 0.20%. The decline in propylene resulted in a simultaneous decrease in cost by about 0.16%.

9. Balance of supply and demand for Polypropylene

Supply and demand are shrinking from 2014 to 2018, but a large number of petrochemical plants will be put into operation in the second half of 2019, releasing about 2.75 million tons of capacity. In the current automobile market is sluggish, household appliances market with the tightening of the property market, downstream demand is difficult to boost.

X. Recent International Environment

1. The U.S. crude oil embargo on Iran will widen the global crude oil gap and support the price of polypropylene in the later period of international crude oil.

2. The United States continues to impose tariffs on China, and imports of plastic products from the United States will decline. The resulting supply gap should be filled by the domestic market, which invisibly increases domestic demand and supports the price of polypropylene.

XI. SUMMARY

Combined with the above factors, it is difficult to judge that PP price in the post-market will rise in the short term.

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