VINACHEM

China’s polypropylene (PP) exports have been declining month-on-month since April this year.

But don’t get too excited. This isn’t the result of a rebound in local demand, but instead down to a sharp decline in overseas PP price premiums over CFR China prices.

In November 2021, the average price premium in the India, Pakistan, Vietnam, Indonesia, Turkey, Peru and Brazil PP markets (all of these countries are in China’s top ten PP export destinations) reached a historic peak of $408/tonne. But in 1-18 November 2022, the premium was just $113/tonne.

China is dragging the rest of the global economy ever-further downwards as China continues to increase its PP supply. As I’ve been warning since last April, there’s a risk that in the process there will be a great equalisation: Global PP and polyethylene (PE) prices falling to China’s very depressed levels.

There is still a long way to go, however. Despite the recent declines, the average price premium for the countries detailed above was $308/tonne between 1 January 2021 and 18 November 2022. This compares with just $55/tonne in 2020.

A question you need to ask yourselves is this: What would overseas PP profitability look like if pricing in other countries and regions fell to Chinese levels? Take a look at the lates northeast Asia (NEA) margins chart in the blog post for guidance. For the week ending 18 November, NEA naphtha-based integrated variable cost PP margins were minus $185/tonne.

We are sorry to be so gloomy but it is what it is. This is the worst downturn we have seen in 25 years analysing this industry.

The key to success in these difficult times is micro management of markets.

“Do I sell more in Turkey, India or China this month or do I instead cut back on overall production?” are the type of decisions you need to get right in order to generate vital revenues or save on feedstock costs with oil prices set to remain very volatile. – ICIS –