PX stays strong during Chinese New Year holiday

Crude oil and petrochemicals extended the resilience as US dollar weakened and China reopened. As of Jan 27, PX price rose to $1076/mt CFR China, on the back of gains in feedstock price and rise of PTA plant operating rate. Compared to the levels before the holiday, crude oil prices trimmed gains, while petrochemicals including PX stayed strong.

PX-naphtha spread widened by 4.9% from the level before the holiday to $364/mt as of Jan 27. PX was stronger than feedstock naphtha on the back of rise in PTA plant operating rate, and thus the spread widened.

PX-MX spread widened by 30% to $78/mt over the same period, indicating good economics, however, the monthly average spread in Jan squeezed from Dec. Gasoline demand in China recovered with COVID restrictions lifted and hence MX tracked the rise in gasoline price.

On demand side, supported by the rise in commodities, restocking demand for polyester was spurred and inventory dropped sharply, alleviating the pressure on polyester plants.

PTA processing spread rebounded and the plant operating rate climbed up fast, after the continuous production cuts during late Oct till late Dec 2022. The average operating rate rose by 17 percentage points from late Dec to around 77% in late Jan.

The increase in PTA plant operating rate drove up demand for PX. There was also restocking requirements for PX, as feedstock at PTA plants hovered low after the persistent PX inventory reduction in 2022. In addition, negotiation of 2023 contract PX made slow progress. PX term contract for 2023 has reduced, as PTA producers were cautious due to new PX and PTA plants going to start in 2023 and some traders diverted materials to US market. As a result, buying activity in spot PX increased, supportive to PX price, while supply growth from domestic new plants was slow.

In the second quarter of 2023, several Asian PX plants are going to undergo maintenance. In Jan, the trading in PX market centered on Mar materials, while the turnaround season was expected to begin in Mar and last through the second quarter. Therefore, PTA plants with reduced contract PX supply would enter spot PX market to restock.

However, China domestic PX inventory is still expected to increase in the first quarter of 2023. With PX-naphtha spread widening, and refined oil products stabilizing, PX plants in China and abroad are ramping up the run rates. New plants are expected to release production, and in addition, Saudi’s Rabigh is poised to restart its 1.34 million mt/yr plant. China PX inventory is estimated to rise by 400-500kt in the first quarter.

In the second quarter, China PX production is expected to reduce amid heavy turnarounds, while demand may increase with new PTA plants starting. Meanwhile, any sharp rise in refined oil and whether the situation in the same period of last year could repeat should be watched closely. However, there could also be some adverse impact. Polyester chain is currently supported by rosy expectation, but whether the demand could recover as expected should be watched closely. Whether PTA plant operating rate would see unplanned sharp drop with processing spread squeezing should also be noted.

In a conclusion, PTA plant operating rate rises recently amid low feedstock, and PX stays strong. However, with PX inventory to increase, the shortage for PTA producers could have alleviated, while PX is still supported by turnaround expectation in the second quarter. If demand shrinks unexpectedly, plant maintenance delays and buying from PTA plants reduces, PX price may correct down.