Polypropylene: Record high maintenance losses in March, sharply reduced supply supporting April market expectations

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Zhuochuang Information’s Polypropylene Analyst Sun Ziqi

[Intro] In March, influenced by geopolitical tensions in the Middle East, upstream raw material prices for PP rose and there was a risk of supply disruption. This led some production enterprises to cut output and reduce operating rates, causing the industry’s operating load factor to drop to the lowest level in history. Both shutdown loss volume and production loss volume hit record highs. Entering April, maintenance activities remained highly concentrated. It is expected that shutdown loss volume will set a new record again, further tightening supply.

More output cuts and reduced operating rates by producers; PP maintenance-related loss volume hits a new high

Influenced by Middle East geopolitical developments, in March PP upstream raw material prices rose significantly and faced the risk of supply cutoffs. To cope with high production costs and reduce losses, some production enterprises voluntarily cut output and reduced operating rates. Although the number of natural days in March increased, PP total output still fell to 3.0287 million tons, down 1.29% month over month and down 7.77% year over year. Daily average output decreased from 109.6k tons in February to 97.7k tons, a drop of 10.86%. At the same time, in that month the PP industry operating load factor fell to the lowest level in history at 67.53%, down 8.21% month over month. Monthly shutdown loss volume reached a peak of 998.2k tons, and together with production losses caused by reduced operating rates, the total reached 1.46M tons. In summary, PP supply in March was significantly reduced, providing strong support for spot market prices.

Maintenance activity is concentrated; in April shutdown loss volume is expected to rise to another peak

At the end of March, in addition to planned shutdowns on the East Huayou Energy (Ningbo) Phase II Line 1, Lanzhou Petrochemical’s new line, Baofeng’s Line 1 in Inner Mongolia, and projects such as Lihe Zhixin, Yizixin Petrochemical’s 2PP and Dushanzi Petrochemical’s old Line 2 maintenance were also brought forward, increasing the number of shutdown units further. Entering April, besides operational shutdowns of Sinopec units such as Zhenhai Refining & Chemical and Maoming Petrochemical, Sinopec upstream units including Sichuan Petrochemical, Liaoyang Petrochemical, and Guangdong Petrochemical under PetroChina will also join the lineup of short-term shutdowns. It is expected that capacity involved in shutdowns in April will reach 10.75 million tons, and shutdown loss volume is expected to climb to 1.1578 million tons, setting another record high.

PP shutdown statistics for March–April

Losses in major raw material pathways intensify, suppressing companies’ willingness to run

In March, the costs and profits along PP’s main raw material pathways saw significant changes. Among them, the monthly average cost for oil-based PP rose to 9,304.59 yuan/ton, up 29.74% month over month; the monthly average cost for PDH-based PP rose to 10,625.5 yuan/ton, up 37.66% month over month. The monthly average gross profit loss for oil-based PP reached -855.08 yuan/ton, with the loss magnitude widening by 52.74% compared with February. For PDH-based PP, profit fell to -2,223.74 yuan/ton, with the loss magnitude widening by 106.94% compared with February. As of the end of March, the PP costs of both processes had already exceeded 10,000 yuan/ton. However, in the PP East China market, the prices of mainstream filament-drawing category products still fluctuated between 8,900 and 9,200 yuan/ton. Meanwhile, as production costs along major raw material pathways continued to rise and losses intensified, companies’ willingness to operate would be further suppressed, thereby driving supply reductions.

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