Although the polypropylene market is still in a pattern of oversupply, the pattern of oversupply has not deteriorated, but shows signs of improvement in the context of active production reduction of production enterprises and centralized resumption of downstream enterprises. It can be judged that yesterday’s decline of polypropylene period price was mainly affected by the cost side.
The price of raw materials fell sharply
OPEC 2 monthly report estimates that in 2020, global crude oil demand will be 100.73 million barrels / day, non OPEC supply will be 66.6 million barrels / day, OPEC unconventional oil and gas and NGL production will be 4.83 million barrels / day, then OPEC crude oil production will be 29.3 million barrels / day, and global crude oil supply and demand will be balanced. In December 2019, OPEC announced another 500000 B / D reduction based on the previous production reduction agreement, and then Saudi Arabia announced an additional 400000 B / D reduction, i.e. OPEC reduced its production by 772000 B / D, with the production no more than 3038600 B / d. In January 2020, OPEC’s crude oil production was 28.859 million barrels / day, exceeding the production reduction task. If OPEC can maintain production at this level, the global crude oil supply will not be excessive, but will be in short supply. However, the decline in OPEC 1 crude oil production was largely caused by the decline in Libyan production, which is not the normal situation.
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Not only that, at the end of February, social public events gradually spread from China to Japan, South Korea, Italy, Iran and even the whole world. Its impact on the global economy is inevitable, which is bound to curb the consumption of crude oil, and the problem of global crude oil supply surplus is further intensified. This means that if the global crude oil supply needs to be balanced, OPEC must extend the production reduction agreement and further increase the production reduction. It was widely believed that OPEC would probably extend the period of production reduction for its own benefit.
However, at last week’s ministerial meeting, OPEC’s crude oil production will no longer be limited in April because of Russia’s opposition and the final failure to reach a production restriction agreement. Affected by this factor, the global crude oil price fell by about 30%, breaking through the $30 / barrel threshold, and the energy and chemical sector fell accordingly. Considering that the price limit of polypropylene is only 4%, which is far from releasing the negative effect of deep oil price drop, it is expected that in the next few trading days, on the premise of no obvious improvement in international oil price, the period price of polypropylene will continue to decline.
Enterprises need to return to work gradually
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Affected by social public events, the resumption of downstream polypropylene production enterprises is limited, and the operating rate is at a low level for a long time. However, with the improvement of the situation, it is a fact that the supply and demand pattern of polypropylene is getting better. First, as of March 6, the operating rates in the fields of plastic knitting, CO injection molding and BOPP were 45%, 63% and 51.9% respectively, 13, 14 and 39.6 percentage points higher than that on February 7, respectively, and the downstream demand improved. Second, due to poor profits, polypropylene production enterprises have been shut down in the near future. In the week of March 8, the capacity involved in the overhaul of polypropylene production enterprises reached 4.44 million tons / year, and the operating rate fell 13.36 percentage points month on month. Third, with the decline of supply and the rise of demand, the inventory of two barrels of oil fell slightly.
The supply and demand pattern of polypropylene improved, but the upstream crude oil price fell sharply, and the cost collapse became the leading factor for the price drop of polypropylene yesterday. Considering that the decline of oil price is much higher than that of PP, PP will continue to decline in the future. After the bad situation is digested, more single bottoms will be selected.
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