China PX supply expected to increase

PX is the most eye-catching in polyester chain recently. The price advances sharply in May, even exceeding the rise in crude oil and driving up downstream PTA and polyester markets. PX-naphtha spread has taken the largest part of the profits from crude oil to polyester chain, about 60% of the total profits.

Note: Naphtha and PX prices are converted into yuan prices. Polyester composite profit is based on POY, FDY, PET bottle chip, PET fiber chip and PSF.

Recently, a large amount of Asian PX cargoes were exported to the US and a fire accident broke out at S-Oil’s Onsan Refinery, which came under the spotlight with much attention.

Supported by increasing exports and the fire accident, as well as tight PX supply, PX to naphtha spread widened sharply to $406/mt on May 23, hitting new high in 37 months.

With the widening of the spread, PX producers are motivated to keep high plant operating rates. Chinese producers, in particular, has raised PX plant run rates as domestic consumption growth of refined oil products was anemic.

From the figure above, several plants in China raised operating rates, some are going to restart, and some plant has postponed the scheduled maintenance. Based on the progress, it is estimated that China domestic PX plant operating rate could rise to above 80% by mid-Jun, a high level in three years.

China domestic PX production is expected to increase obviously in Jun with operating rate rising. However, as downstream PTA and polyester profits are low, PTA production could keep largely stable or increase slightly while PX production could rise notably.

Therefore, if PX supply and demand is to keep balanced, which means the inventory is little changed, the requirements for PX imports are estimated at 1.05 million tons in May, but reduce to 900-950kt a month in Jun and Jul.

Note: Supply deficit is calculated based on forecast for production and demand. It reflects the requirements for imports to keep supply and demand balanced (little change in inventory).

Besides from production rise in China, plants outside China may also raise operating rates. Whether the arbitrage from Asia to US can sustain would be dependent on the impact from gasoline consumption on PX market, which would also be an influential factor. In addition, the restart of Oman Aromatics’ plant could also contribute to PX supply increase.

In a conclusion, PX supply is expected to increase and the shortage in Asia could get relieved gradually. However, it would take time for the production rise to materialize, and some downstream plants may increase PX stocks prior to the typhoon season, and thus PX market could get supported in the short term.