Coal based capacities weigh down more on PP than HDPE in China

27-Oct-14

Since the downturn that kicked off in early September in China, domestic PP prices have lost an average of US$120/ton. The downward trend for HDPE saw a late start and recorded a smaller loss of US$50/ton on average, based on ChemOrbis Price Index. Both products have been suffering from weaker than expected demand in China as well as plunging upstream costs, leading to the downtrend. Nevertheless, the fresh start-ups of the larger, new coal based capacities have been weighing down more on the PP market in China. In the import market, PP has posted a larger decrease than HDPE. Except for the first few months of 2014, PP and PE prices had gradually firmed up since the onset of H2-2013. The import market only turned downwards as of the beginning of September. Along with the recent decreases, average import PP prices hit an almost 16-month-low. On the other hand, import PE prices only retreated to March levels. The new plants using coal based feedstocks are more concentrated on PP as a total capacity of over 3 mln tpa is expected to come online. Three new plants with a combined capacity of 600,000 tpa started up in late August. Ningxia Baofeng is planning to launch its new 300,000 tpa coal based PP plant this month while another coal based producer, Pucheng Clean Energy Chemical, is expected to begin test runs at its 400,000 tpa plant in mid-November. According to ChemOrbis, the impact of the coal based capacities has been seen not only in the recent downturn, but also on the gap between PP and HDPE prices. Since early 2010, homo PP traded above or at par with HDPE in China up until March 2014. However, as a result of new coal based capacities coming onstream for PP, average homo PP prices fell below HDPE in the import market in early March 2014, as can be seen from the graph below. Accordingly, HDPE has regained its premium back over homo PP in the past 8 months with the current gap being as wide as US$100/ton.