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Difficult for PX-naphtha spread to rebound

2020-10-16 08:55:23 CCFGroup

PX profits has been shrinking rapidly since the second quarter of 2020, with PX-naphtha spread touching record lows once again. The demand has become the key factor to PX profit in 2020.

1. PX-naphtha spread and PTA operating rate
From the chart below, it can be seen that PX-naphtha spread declined fast from $300/mt to around $140/mt from Apr to Jul. During that period, PX-naphtha spread and PTA operating rate showed a positive correlation that the spread narrowed in sync with the drop in PTA operating rate and rebounded in line with rise in PTA operating rate.

2. Supply reduction barely supports the market
Asian PX operating rate was reduced for three time, in Mar, May and Jul respectively. However, PX profits was barely supported by the contraction of supply, reflecting that even though the operating rate was cut, supply availability was not tight.

3. Shortage of storage space
Besides from the PX supply and demand change due to PX and PTA plants maintenance, PX-naphtha spread was also weighed by some unscheduled shutdowns of PTA plants this year. In the end of Apr, one PTA plant in Zhejiang was shut unexpectedly, and in May, two plants in Jiangyin were shut, impacting PX market. In early Jun, one PTA plant in Jiangsu restarted and Hengli Petrochemical’s fifth plant was expected to come on stream, sending PX-naphtha spread recovering. However, in the latter half of Jun, PX market was again weighed by one QTA plant in South Korea catching fire. In mid-Jul, one PTA plant in Zhejiang was shut unexpectedly, driving PX profits lower, however, PX-naphtha spread was bolstered by the slump in naphtha price after an accident occurred at a refinery in Taiwan. In Sep, the unscheduled shutdowns of two PTA lines in South China brought pressure on PX-naphtha spread which was squeezed to new lows.

In a conclusion, PX prices and profits are weighed by fast capacity expansion and continuous oversupply. Adding to the woes is the shortage of commercial storage tank for PX as the product is liquid. Looking forward, it is still difficult for PX-naphtha spread to rebound substantially, as supply contraction is limited, new PTA plant startups are delayed and PX inventory reduction is slow.