October 19, 2024 – As the chemical industry steps into its traditional peak season, market participants eagerly anticipate an upswing in prices. However, the polypropylene market, burdened by high inventories and sluggish demand, has failed to ignite the expected fervor. It was not until the latter half of September that a series of macroeconomic policy tailwinds breathed new life into the market.
On the night of September 19, the Federal Reserve announced a 50-basis-point cut in interest rates, adjusting the target range for the federal funds rate to 4.75% to 5%. This marked the Fed’s first rate reduction since 2020, and the magnitude of the cut surpassed market expectations. Consequently, crude oil prices rebounded to over $70 per barrel, and the PP futures market followed suit with an upward trajectory, injecting a dose of confidence into the market. Yet, the spot market’s response was relatively sluggish, with overall prices oscillating within a range.
In China, following the Fed’s monetary policy shift, the government unveiled a suite of significant policies on September 24. These measures encompassed reductions in the reserve requirement ratio and policy interest rates, adjustments to mortgage policies, and the creation of new monetary policy tools, all aimed at bolstering stable economic growth. As these economic policies gradually took effect, market sentiment turned increasingly bullish. After the National Day holiday, the macro policy impact continued to resonate, driving domestic stock and futures markets to rally. Buoyed by this momentum, the polypropylene spot market experienced a remarkable surge, with prices jumping by more than 200 yuan per ton.
Notably, despite the substantial policy impetus, downstream industries such as plastic weaving and plastic film, though in their peak season in October, witnessed lower operating rates than previous years. Actual demand still requires further recovery. According to Color Masterbatch Industry News, Sinopec Ineos (Tianjin) Petrochemical Co., Ltd. plans to commence production at the end of October, with an anticipated new capacity of 2.8 million tons, pushing the total polypropylene capacity to 42.74 million tons. This will exert additional pressure on future supply. Moreover, inventories continue to pose a challenge, with stocks of major oil companies, despite declining, remaining higher than the previous year’s levels. On the demand side, operating rates in some downstream industries are lower than the same period last year, and factory order improvements are limited. Additionally, elevated raw material prices have further squeezed factory profit margins, thereby inhibiting downstream demand to some extent.
In summary, while the introduction of macro policies has provided a boost to the polypropylene market, the market faces numerous challenges in the coming period. Industry insiders must closely monitor policy developments, supply and demand dynamics, and market sentiment to formulate prudent business strategies.