Since 2022, the negative profitability of polypropylene production companies has gradually become the norm. However, the poor profitability has not hindered the expansion of polypropylene production capacity, and new polypropylene plants have been launched as scheduled. With the continuous increase in supply, the diversification of polypropylene product structures has been constantly upgraded, and industry competition has become increasingly fierce, leading to gradual changes in the supply side.
Continuous increase in production capacity and increasing supply pressure:
In this round of capacity expansion, a large number of refining and petrochemical integrated plants, mainly driven by private capital, have been put into operation, leading to significant changes in the supply side of domestic polypropylene production companies.
According to data from Zhuochuang Information, as of June 2023, the domestic polypropylene production capacity has reached a staggering 36.54 million tons. Since 2019, the newly added capacity has reached 14.01 million tons. The continuous expansion of capacity has made the diversification of raw material sources more apparent, and low-cost raw materials have become the basis for competition among companies. However, since 2022, high raw material prices have become the norm. Under the pressure of high costs, companies have been constantly adjusting strategies to optimize profitability.
Operating at a loss has become the norm for companies:
The simultaneous operation of a large number of polypropylene plants in the early stage has gradually increased the pressure on the supply side of polypropylene, accelerating the downward trend of polypropylene prices. In recent years, companies have also faced the dilemma of continuous gross profit losses. On the one hand, they are affected by high raw material prices; on the other hand, they are affected by the continuous decline in polypropylene prices in recent years, causing their gross profit margins to hover on the verge of profit and loss.
According to data from Zhuochuang Information, in 2022, major commodities represented by crude oil experienced a significant increase, leading to a rise in most polypropylene raw material prices. Although raw material prices have fallen and stabilized, polypropylene prices have continued to decline, resulting in companies operating at a loss. Currently, more than 90% of polypropylene production companies are still operating at a loss. According to data from Zhuochuang Information, as of now, oil-based polypropylene is losing 1,260 yuan/ton, coal-based polypropylene is losing 255 yuan/ton, and PDH-produced polypropylene is making a profit of 160 yuan/ton.
Weak demand meets increasing capacity, companies adjust production load:
Currently, operating at a loss has become the norm for polypropylene companies. The sustained weakness in demand in 2023 has led to a continuous decline in polypropylene prices, resulting in reduced profits for companies. Faced with this situation, polypropylene production companies have started early maintenance and increased willingness to reduce operating loads.
According to data from Zhuochuang Information, it is expected that in the first half of 2023, domestic polypropylene production companies will mainly operate at low loads, with an overall average operating load rate of around 81.14% in the first half of the year. The overall operating load rate in May is expected to be 77.68%, the lowest in nearly five years. The low operating loads of companies have to some extent reduced the impact of new capacity on the market and alleviated the pressure on the supply side.
Demand growth lags behind supply growth, market pressure remains:
From the perspective of supply and demand fundamentals, with the continuous increase in supply, the growth rate of demand is slower than the growth rate of supply. The tight balance between supply and demand in the market is expected to gradually shift from equilibrium to a state where supply exceeds demand.
According to data from Zhuochuang Information, the average annual growth rate of domestic polypropylene supply was 7.66% from 2018 to 2022, while the average annual growth rate of demand was 7.53%. With the continuous addition of new capacity in 2023, demand is expected to recover only in the first quarter and gradually weaken thereafter. The market supply-demand situation in the first half of 2023 is also difficult to improve. Overall, although production companies are intentionally adjusting their production strategies, it is still difficult to change the trend of increasing supply. With poor demand cooperation, the market still faces downward pressure.
Post time: Aug-03-2023