PO Price Reaches A 10-Year High in September
Click:0    DateTime:Nov.11,2020

By Sun Shanshan, JLC

Market fluctuates and then reaches a new high

Chart 1 shows the PO price trend in East China market from 2017 to 2020. The market prices have been ups and downs this year. At the beginning of the year, affected by covid-19 pandemic, PO prices, on the sluggish in downstream and end demand, fell to the historic low of RMB6 800 to 6 900 /t (East China market, same below) in early April. The prices slowly increased from mid-April to the end of July, due to the firm control of the pandemic and the economic stimulus plan, coupled with a concentrated PO line maintenance at home and abroad. PO prices picked up quickly from late July to early August and then temporarily stabilized under the concentration of import arrivals (about 15 000 tons). However, as the upstream and downstream inventories were low, and the demand from major derivative polyether was robust, PO prices continued rising and finally reached RMB17 600/t, a new high.

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Chart 1 PO East China market prices, 2017-2020

Supply

   1. Domestic supply shrinks compared to the previous period
   Table 1 is a summary of China’s PO unit recent operations. In late August, Sinopec Changling operation was unstable, and Nanjing Hongbaoli unit was completely shut down for one month for maintenance. In early September, Shandong Jinling, Sanyue and Xinyue all reduced operating rates due to power failures. The overall supply curtailed.

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   2. More captive use among overseas suppliers
   Both PO imports and its downstream high-end polyether imports shrank significantly. There are two reasons. Firstly, most of overseas PO units were shut for maintenance in the first half of the year. Secondly, after the covid-19 epidemic got gradually controlled, the overseas market demand resumed, and the proportion of captive use increased. The import amounts in October and November are still hard to recover.
   3. Domestic apparent consumption decreases year-on-year
   Table 2 compares PO’s apparent consumptions between May to August 2019 and May to August 2020. The apparent consumptions of May to August 2020 dropped by different degrees compared with the same period last year. The operating rates were also lower, leaving the output decreased year-on-year. In summary, from May to August 2020, China's apparent consumption of PO fell by 30 000 tons/month year-on-year.

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Demand

   1. Strengthened support from polyether
   Polyether is the main downstream of PO, consuming 78% of the domestic PO production. Therefore, the polyether trend has a great influence on PO market. Among all the polyether products, the soft foam takes over 50% market shares. Chart 2 shows the conventional soft foam price trends in China in 2020. Similar to its raw material PO, the polyether soft foams were also generally going upward from late July to mid-September. Strong support from polyether somewhat rallied the PO market.

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Chart 2 China’s conventional polyether soft foam market prices, 2020

   2. Some support from automobile and refrigerator
   The interaction between end markets like automobile and PO is close. Chart 3 shows China’s automobile sales from 2017 to July 2020. The overall trend from July to November is upward. Although the world has been greatly affected by the epidemic this year, and the overall sales of automobiles dropped broadly at the beginning of the year, with various stimulus policies at home and abroad, it is expected that the automobile industry will also usher in a wave of sales in October and November this year, supporting PO to some extent.

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Chart 3 China’s automobile sales, 2017-July 2020

   Chart 4 provides China’s household refrigerator sales from 2018 to 2020. It can be seen that in June and July, the sales hit a new high of the past three years, and the exports rose simultaneously, with overseas orders being scheduled to August.
The growth in sales and exports of automobiles and refrigerators has continuously supported the PO market.

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Chart 4 China’s household refrigerator sales, 2018-2020

A bull market in the near future

   The tightness of PO will not be relieved in short term as the imports will remain short, the upstream and downstream inventories are low, and the downstream demand is still bullish. Jinling Huntsman's PO line will be shut for maintenance in November, which will last 55 days. Dow (Thailand) is also planning maintenance. The overall supply is hence not likely to improve. It is expected that the PO market will continue to be strong, and affected by high prices and downstream pressure, there might be a period of volatility.