Faced with high propylene costs, PP producers struggle in Asia

PP producers in Asia continue to struggle to conclude deals at prices sufficient to cover their theoretical production costs based on spot propylene prices as per Chemorbis. Slower than expected post-holiday demand in China has pushed PP buyers throughout the region to the sidelines in anticipation of retreating prices on slackening demand from China. Meanwhile, PP producers continue to face high spot propylene prices, that have retained their relative strength despite dwindling PP demand and declining spot ethylene prices, mainly due to limited supplies. While spot ethylene CFR Northeast Asia offers have lost nearly US$70/ton from the beginning of the month, spot propylene quotes have held steady since the beginning of March, with a few deals concluded last week at prices significantly above the spot quotes heard at the beginning of the month. Though propylene stock levels in China have been accumulating recently, this stock accumulation has so far generated no change in pricing beyond sentiment that last week’s high end done deal levels will not be repeatable over the short term. Thirteen propylene facilities are scheduled for regular maintenance during the next few months, leading to a conviction among propylene buyers that supply for the product will remain limited until the summer. News of four unexpected propylene outages in Japan at Mitsui and Nippon Oil has aggravated the region’s already heavy maintenance schedule. This supply limitation has also helped to maintain good margins on propylene production, with spot propylene prices standing around US$500/ton above naphtha prices. In the PP market, import sellers continue to struggle to achieve prices consistent with theoretical production costs. A trader in Southeast Asia complained that their high end offer levels are failing to generate buying interest these days, adding that they have only been able to conclude a few deals in small quantities at the low end of their offer range, which is well below the theoretical break-even point for PP production. A woven bag manufacturer in India reported that the offers they received for Middle Eastern raffia were lower on a week over week basis but added that they are still in no mood to purchase as they expect to see even lower prices emerging over the short term. Current offers being reported in these markets carry a premium of only US$60-100/ton above spot propylene prices on FOB Korea basis, suggesting that the producers manufacturing these cargoes are operating with negative production margins. In China, a trader comments that their offers are failing to attract buyers and that they are receiving offers from their suppliers with margins of as little as US$20/ton above the prevailing spot propylene prices.