PP: THE VALUATION IS HIGH, AND IT IS STILL A SHOCKING MARKET FOR THE TIME BEING

First of all, the recent market transactions have been weak, especially the current weaker basis and weaker spread are really not good signals. The current market general consumer downstream demand, especially the weak demand for packaging is the core of the continued weakness, and the previous strong copolymer injection molding has also shown obvious weakness. The supply side of the superimposed market continues to expand, the market’s mid-term turnaround will take time to repeatedly brew, and the short-term market rebound is nearing its end.

Second, In the past two month, there have been two centralized replenishments in the spot market, but none of them have provided substantial support to the market because the downstream procurement cycle has been prolonged and a low inventory operation mode has been adopted. It is expected that there will be about 15-18% of new production capacity put into the market throughout the year. On the supply side PP will increase significantly in 2021. A significant increase in supply will lead to a continued weak basis difference. Only after the expansion of demand in the second half of the year, the terminal industry to expand their own inventory levels, in order to gradually digest the current capacity pressure. The downstream is obviously weaker than the polyolefin industry itself. This is not a pattern that a continuously rising market should have. Therefore, we still define the current market as a weekly shock market. There will be a decline after a short-term rise, and it will still be strong after the third quarter.

Third, fiscal easing, monetary easing, and inflation are major trends, and there should not be too much hesitation. In the off-season of the first half of 2021, terminal demand will not be able to expand further, leading to a decline in terminal operating rates and reduced stockpiling, which may cause commodity prices to weaken in the second quarter. However, the downstream demand of PP remains stable in the second half of the year, and the order execution period in the second half of the year will drive the recovery and strengthening of PP.

The short-term market price is slightly high, and the futures will fluctuate in the mid-term. In the future, the pressure on the top of 09 contract is 8650-8700, and the short-term support is at 8000.


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