Weakness may continue dominating PP market amid unbalanced supply/demand
Last week, 400kt/year of Ningbo Kingfa Advanced materials I #2 has been put into production, China PP granule production capacity has increased to 38.935 million mt/year, with a year-on-year growth rate of 14.06%. The release of new capacity has further increased the supply pressure in the domestic market. However, the performance on the demand side has been less than satisfactory.
Since November, China domestic PP market has continued its volatile trend. In East China, mainstream traders offer for homo PP raffia at 7600-7700yuan/mt, with the market price rising by about 50-100yuan/mt compared to the second half of October. However, by comparison, it can see that PP futures have risen by nearly 300yuan/mt since the second half of October, far exceeding the increase in spot prices. The spot-futures basis has weakened significantly. It is evident that compared to PP futures, spot prices are more difficult to rise. Combined with feedback from market transactions, it indirectly confirms the weak downstream demand and the low acceptance of high-priced goods. It is also partly due to the in downstream slack demand season.
In the later period, there are still new plants planned to be put into production in the fourth quarter, and the annual production capacity is expected to exceed 40 million tons/year, which may further increase the supply pressure. However, in the context of the off-season, the improvement in downstream demand is not strong, and there is a higher possibility of purchasing on need. Overall, the market expects a weakening supply-demand pattern, with spot prices potentially under downward pressure. However, given the relatively strong macro sentiment and stable cost support, it is anticipated that the PP market will maintain in weak consolidation.
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