Strong PX market and short term forecast

Crude oil has been slipping fast since Aug, while PX is relatively strong with price hovering in the range of $940-950/mt CFR. As a result, PX-naphtha spread has widened by 10% from the end of Jul.

PX market is recently bolstered in a large part by slower-than-expected progress of production from Zhejiang Petrochemical Phase II’s new plant. When the plant could maintain normal operation is uncertain and thus PX market is propped up.

On supply front, production from the new plant has not materialized, but most domestic plants in China are running stably and the average operating rate maintains high. Though Dongying Weilian’s 1 million mt/yr PX plant was under scheduled maintenance in the latter half of Jul, the average operating rate of domestic PX plant maintained around 78-80% in late Jul. In Aug, the base of production capacity increased with the new plant’s 2.5 million mt/yr capacity added while the plant was running at low operating rate, hence, the overall operating rate reduced while production was little changed.

The operating rate of Asian PX plants (including Chinese mainland) rebounded to 80-85% with plants completing maintenance. In addition, operating rate of aromatics was kept high due to goof benzene and PX profits. Plant operations recovered in South Korea and Japan, two major origins for China’s PX imports. In the months to come, China PX imports are estimated to reach 1.15~1.2 million tons a month.

In terms of demand, China PTA plant operating rate has dropped to low range, due to some unplanned shutdowns and low run rate of Yisheng New Materials’new plant.

In Jul-Aug, China PX inventory is expected to increase by 200kt. In Sep, though some PTA plants may undergo maintenance, PX supply and demand could be broadly balanced with low operating rate of the new PX plant.

Buying sentiment is moderate in PX spot market recently. Firstly, PTA producers show interest in buying feedstock PX, attracted by good profits. Secondly, some domestic PX supply has cut contract supply continuously, hence PTA plants have to restock from spot market. Thirdly, there have been requirements for spot PX, as 2020 term contract PX supply is not enough for PTA producers. As a result, PX spot supply is tight and the price keeps firm.

However, the advancing momentum for PX seems to be weakening.

With the Delta variant spreading fast globally, the pandemic has not been effectively curbed, leading to drops in crude oil prices. It will be difficult for crude oil to rebound substantially in the short term.

As for PX, with the expected restart of Dongying Weilian’s plant in end-Aug, China PX production is estimated to increase until Oct, when some plants would begin maintenance. If Zhejiang Petrochemical’s new PX plant gains access to feedstock, domestic production rise would further accelerate.

On demand side, PTA plant operating rate is expected to tick up with some plants restarting this weekend, but it would still take time for the new PTA plant to raise operation to full swing. Therefore, demand for PX may improve but the increment would be capped.

In further downstream sectors, polyester market is bleak.

The composite profits of polyester products (including POY, FDY, PSF, PET fiber chip and PET bottle chip) are in negative territory and hit this year’s low point. POY profit is still positive, while others are under break even lines, reflecting increasing pressure on polyester companies. In addition, some polyester plants are in the lack of feedstock. The average operating rate of polyester plants has dropped from 94% in early Jul to current 90%, and some plants even start to sell feedstock. Therefore, PTA is under pressure of increasing supply and slightly reduction in demand.

In a conclusion, though PX and PTA tight supply has alleviated, the supply overhang is not obvious. The margins are likely to keep strong, and the prices are expected to track the feedstock and commodity market.