Can PX remain strong with plants restarting?

PX price has been rising since Feb, as China PX inventory started to decline in Nov 2020 and some unplanned plant hiccups interrupted PX supply. Meanwhile, crude oil price soared during Chinese Lunar New Year holiday, further driving up PX prices. As a result, PX-naphtha spread widened obviously to 9-month high of $210/mt on Feb 17, and Feb’s average spread was $197/mt as of Feb 19, up 15% from Jan.

PX price hiked on plant shutdowns and O/R cuts. However, in Mar, earlier PX supply disruptions are expected to recover.

In terms of downstream PTA, though the price tracked the rise in crude oil, PTA-PX spread narrowed rapidly to 309yuan/mt on Feb 19, new low since Oct 2018. Meanwhile, acetic acid price has spiked to above 5,400yuan/mt in East China, which means acetic acid constitutes 160~190yuan/mt. In addition, other costs including water, electricity power, steam, labor, etc. amount to more than 150yuan/mt. It testifies to the losses for PTA producers.

However, Feb Asian PX Contract Price was settled at $705/mt CFR, compared to spot price at $750/mt on Feb 19. Based on 50% PX spot price and 50% ACP, Feb PTA-PX average spread was around 457yuan/mt as of Feb 19, above break-even level and providing some relief to PTA producers.

Therefore, PTA operating rate cuts on a large scale is unlikely in the short term. However, if the pressure from the squeeze of PTA margin continues, PTA plants may consider productions cuts.

In terms of cost, crude oil price was driven up by the deployment of vaccines, expectation of US stimulus plan and OPEC+’s production cuts, as well as supply disruptions by the deep freeze in the US. However, the support could be short-lived, as production is expected to recover with the temperature getting higher, and then oil price could return to its fundamentals.

As for naphtha, the market was concerned about steam crackers cutting operating rate due to sharp decrease in ethylene margins. In addition, LPG price dropped, adverse to the demand for naphtha.

In a conclusion, from the standpoint of cost and fundamentals, PX price could pull back marginally in short term, tracking the correction in crude oil. PX supply and demand could turn balanced in Mar, with some plant shut for maintenance in Mar while inventory reduction slowing down. PX-naphtha spread may hover around $200/mt and even widen slightly as naphtha price can hardly maintain strong.