PX facing near-term rising inventory but long-term relief

PX keeps the resilience recently. While naphtha to crude oil price spread widened slightly, PX to naphtha spread also enlarged to $394/mt on CFR basis as of Nov 17, new high since Oct 10, before narrowing to $364/mt on Nov 21.

In terms of fundamentals, PX inventory is still expected to increase. With toluene and MX price weakening, the economics of PX based on toluene or MX have improved, leading to continuous increase in PX plant operating rate. As of Nov 20, the average level of China domestic PX plants has risen to above 84%, as CNPC Sichuan and Weilian Chemical's one line, which were shut earlier, resume production. Asian plant operating rate ticked up to 77.5%, and some plants may further raise the run rates slightly. PX plant operating rate hits this year's new high, however, that of PTA has dropped to 75% in Nov due to poor economics earlier.

As a result, China PX inventory is estimated to increase by 150kt in Nov, rising for the second consecutive month.

However, with the improving economics of PTA, producers show more intentions to raise operating rates.

- One 2.2 million mt/yr PTA line in East China has restarted recently. It was shut in early Nov for maintenance.

- One 1.25 million mt/yr PTA line of the new plant with combined capacity of 2.5 million mt/yr in South China has got on-spec product.

- One 2.2 million mt/yr PTA line in Northeast China has also restarted.

- One 640kt/yr line in East China is poised to restart recently as scheduled.

- One 1 million mt/yr line in Southwest China is slated to restart this weekend and another 1.1 million mt/yr line in South China is expected to restart in end-Nov.

- One 2.2 million mt/yr line which has been idled for a long period in East China is preparing to restart.

Though one 2.5 million mt/yr PTA plant in South China has reduced operating rate to 50%, it could still not cushion the supply increase. In Dec, PTA plant turnarounds would be limited, and the average operating rate may rebound to 86-87%.

Based on the estimations for plant operating rates, PX supply and demand could be balanced or the inventory could reduce, indicating demand increase outpacing that of supply. (It is expected that Fujia Dahua is going to shut its 1.4 million mt/yr PX lines in end-Nov for maintenance, and Zhongjin Petrochemical may shut its PX plant in Dec for maintenance).

In terms of trading, spot PX trading is now centering on Jan and H1 Feb goods. During Jan-Feb, there would be Spring Festival holiday in China, when polyester and downstream weaving plants are very likely to fall with reduced demand in the industry. At that time, it is probably that PX inventory could increase again.

However, the expectation on PX in 2024 remains good, as there would be no new capacity, while PTA capacity is expected to increase by 4.5 million tons and polyester capacity may increase by 5~6 million tons in 2024. Players are also optimistic about the support from gasoline blending demand. In addition, with 2024 PX term contract not concluded yet, suppliers are under pressure to sell and downstream plants have buying requirement.

In a conclusion, PX could be under strains from rising inventory in the short term, but the situation would improve in Dec with PTA plant operating rate expected to rise. In Jan and Feb, due to weaker demand from textile sector, PX inventory may rebound. However, polyester and downstream sector could be more resilient this year, and there could be support to upstream market before the implementation of operating rate cuts of polyester and weaving plants.

PX also gets support from slow progress of term contract negotiation as well as good expectation for 2024 in the longer run.