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China Witnesses PP, LDPE-EVA Supply Overhang Amidst Scheduled Start-Ups in Q1

As per a recent update, the polyolefin sector in China is exhilarating for an incredible number of capacity additions. According to data, a significant share of polyolefin capacity was deferred beginning December 2022 to the initial quarter of 2023, influencing anticipations of improved market share competition among producers and, therefore, lower costs.

An Additional Great Wave of Fresh PP, LDPE-EVA Capacity to Be Online Between January to April

Many manufacturing plants of PP and PE, mainly situated in seaside cities over eastern and southern provinces, will come online as planned over the course of the Q1, after a tiny delay from the originally planned year-end.

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About 2.6 million tons of capacity in the PP market was earlier planned to be online in December 2022, and this was delayed to come into action in the first quarter of 2023. The amassed PP capacity awaited to begin in the first quarter currently sums up to more than 4.5 million tons/year, equivalent to around 40 percent of total PP capacity additions planned for the competing 2023 in China.

Regarding PE, about 2.5 million tons/year of the latest capacity was deferred to the first quarter of 2023. This compares to around half the full capacity planned to be online this year.

Domestic Inventories Drop While Downside Risks Continue

Joint LDPE-EVA and PP inventories of the two main local producers in China were at 510,000 tons as of 30th December. These levels were lower by around 9 percent compared to a week ago as well as lower in comparison to last year's at the same time.

Yet, since Chinese demand is anticipated to diminish in the days leading to the Lunar New Year, the concern of supply glut from the latest start-ups persists in looming considerably during 2023's first quarter.

Producers Will Likely Continue Cutting Operation Rates

The producers in China have been operating their plants at lower rates since around the second quarter of 2022, focusing on balancing domestic supplies with dwindling demand and alleviating the pressure from increased production rates.

Players mainly expect producers of PP and LDPE-EVA to keep up the run rates low all through the first quarter to support the effect of the upcoming plant start-ups on costs.

As per Procurement Resource, the article states that China's polyolefin sector is exhilarating for several capacity additions as An Additional Great Wave of Fresh PP, LDPE-EVA Capacity will be Online Between January to April.

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However, Joint LDPE-EVA and PP inventories of the two main local producers in China have dropped, and the Chinese demand is expected to drop further, leading to the concern of a supply glut from the latest start-ups during 2023's first quarter.

Furthermore, as per the market analysis, prices of EVA in North America dropped persistently due to strong prices of feedstock and steady production costs while demand remained moderate from the downstream industries.

Similarly, Asia witnessed a decline in the prices of EVA due to decreased feedstock prices and frail market sentiments.

Additionally, the depreciating value of the currency in China, paired with an economic slowdown, adversely affected the prices of the commodity. Simultaneously, Europe also saw a similar trend as feedstock prices lowered due to lower offtakes from downstream industries, along with a drop in prices of vinyl acetate.

Hence it is anticipated that prices for EVA will remain bearish in the upcoming weeks.