PX supply and demand little changed despite PXN spread squeeze

PX price was falling back with PX-naphtha spread squeezed rapidly recently, dragged down by weaker downstream market. As of Feb 17, PX price lost 4% from the high point on Feb 7 to $1,053/mt CFR, and PXN spread narrowed by 19% to $208/mt over the same period.

However, PX supply was little changed. As expected, with some plants restarted after maintenance and PXN spread recovering losses earlier, some plants planned to raise operating rates. The average run rate was expected to rise gradually before the scheduled maintenance of some plants starting from mid-Mar.

On demand front, PTA price declined drastically recently, and its spread to PX narrowed heavily. As of Feb 17, PTA price lost 460yuan/mt or 8% from Feb 7. However, crude oil price gained slightly, with WTI crude futures up 0.5% and Brent futures advancing 0.3% over the same period.

As a result, PTA-PX spread squeezed fast, to around 284yuan/mt as of Feb 17, new low since Apr 15 2021. Due to the low processing spread and volatility in crude oil, more PTA plants could mull over shutdowns for maintenance.

Estimated based on plant maintenance schedules, China domestic PTA plant operating rate could drop by 3 percentage point from Feb to Mar. Domestic PTA production is also expected to reduce slightly in Mar and Apr. Therefore, the gap between domestic PX supply and demand from PTA is expected to reach 1.10 million tons per month in Feb-Apr, slightly smaller than previously estimated. As several PX plants could increase operating rates, China PX inventory may increase, but the increment would be small at about 100kt.

In a conclusion, the recent corrective decline in PX price came as a result from weaker demand. In supply and demand perspective, the pressure is limited. PX supply and demand are still expected to be broadly balanced, and PXN spread is expected to hover in the range of $200-250/mt. In the short term, PX market is expected to be affected by crude oil and any unexpected PX or PTA plant shutdown.