Will firm propylene costs and shutdowns prevent large drops in Asian PP?

In China, import PP offers have been largely following a stable to slightly softer trend this week despite higher propylene costs, which indicate a US$15/ton increase on week over week, and pulled the theoretical import PP production cost above the current import PP offers to China, as per ChemOrbis. Propylene costs in Asia started to recover in September after starting the month with US$70/ton decreases when compared to the beginning of August. Now, propylene prices indicate US$15/ton increases from last week on the back of the increased purchasing activities due to shutdowns in the region. Shanghai Secco halted operations at its 500,000 tpa propylene cracker following a fire that broke out late this past week. Mitsubishi Chemical’s 260,000 tpa propylene plant in Japan was shut for a month and a half at the end of August, and is expected to resume operations on October 17. Meanwhile, Taiwanese CPC shut its No. 5 Kaohsiung cracker with 250,000 tpa propylene capacity on August 10 for 40-45 days. PetroChina Dushanzi shut its 1 million tpa steam cracker for maintenance in mid-August, expected to resume operations by the first week of October. Sinopec Shanghai will shut its 200,000 tpa cracker for 30 days for a scheduled turnaround from mid-September to October. Meanwhile, Sumitomo Chemical’s cracker in Japan with a 288,000 tpa propylene capacity will be shut for a month long maintenance between September 1 and October 17. Honam Petrochemical’s Daesan cracker with 500,000 tpa propylene capacity will be off for an annual maintenance between October 10 and November 9. JX Nippon Oil and Energy Corp’s Mizushima cracker with 80,000 tpa propylene capacity will be shut between October 1 and November 12. Meanwhile, the company will also shut the 140,000 tpa Kawasaki unit for three weeks of turnaround in October. Chandra Asri will also conduct maintenance work on a 306,000 tpa propylene plant in Indonesia for 25 to 40 days, starting from October 5. Meanwhile, developments regarding Formosa are still being tracked as the company is expected to resume their operations on their No.1 cracker by mid-September after four months of being shut down. Looking at China, the import market mostly proceeded slowly following the Mid-Autumn holidays. Overall demand in the market was sluggish while local PP supplies are reported to be loosening since previously purchased cargoes have started to make it to the country’s ports, putting an extra pressure on sellers. Such factors exerted downward pressure on PP prices despite the firm propylene feedstock costs. Nowadays, theoretical PP production costs, calculated with the most recent spot propylene costs on FOB Korea basis, are standing US$110-160/ton above the current import PP offers given to the country. However, buyers generally are unwilling to commit to fresh cargoes as they continue to proceed with limited purchasing activities to cover their urgent needs and this has kept PP margins thin for the producers. On the other hand, firm propylene costs, trigged by the cracker turnarounds in the upstream market, are likely to put a cap on the decrease amounts.