PX-naphtha spread recovers losses under upbeat expectation

Asian PX price has been soaring since the latter half of Dec 2021, with PX-naphtha spread recovering some losses. As of Jan 5 2022, PX price had increased to $932/mt CFR, hitting new high since Nov 11 2021. PX-naphtha spread widened to $201/mt, high point in 3 and a half months, up by 72% from $177/mt in mid-Dec. Both PX price and profits rise, which haven’t been seen for a long while.

1. Rise in upstream and downstream markets

Crude oil and PTA prices both have been hiking since the latter half of 2021. Brent crude futures have advanced by 13% from late Dec to $80.8/bbl as of Jan 5; and PTA price has gained 13% to 5,130yuan/mt, hitting new high since Oct 28 2021. As a result, PX price is driven up by the hikes in raw material crude oil as well as downstream PTA.

2. Improvement in supply and demand

China PTA plant operating rate has increased since late Dec. Though it dropped in Jan due to the maintenance of Fuhua’s PTA plant, the operating rate was still up 10 percentage points from late Dec. However, PX plant operating rate continued dropping over the same period. As of Jan 5, China and Asian PX operating rates have declined by nearly 8 and 5 percentage points from late Dec. In addition, with PTA plant operating rate rising, PX spot supply pressure caused by unexpected PTA plant shutdown in Dec is relieved.

3. Optimistic outlook

According to the current maintenance plan, a spate of PX plants would undergo maintenance in the first half of 2022. The maintenance could cause production loss of 230kt a month in the first quarter and 260kt a month of PX in the second. According to the capacity expansion schedule in the first half of 2022, new PX capacity is limited, and thus production rise would be mainly contributed by Zhejiang Petroleum & Chemical’s Phase II PX plants. As for PTA, Yisheng New Materials is poised to start its phase II with PTA capacity of 3.6 million mt/yr. Therefore, PX supply and demand are expected to improve, as maintenance leads to production loss while PTA expansion would spur growth of demand for PX. In addition, there’s no PTA plant going to shut for maintenance in the short term, and thus demand for PX would be stable.

4. Profits transfer from naphtha to PX

Naphtha was strong earlier, but stays relatively weak recently. Naphtha to Brent crude spread has narrowed rapidly from above $160/mt in end-Dec to $122/mt as of Jan 5, supportive to the widening of PX-naphtha spread to some extent.

In addition to the above mentioned factors, PX price rose also because of scant offers.

With PX-naphtha spread recovering to around $200/mt, some companies could break even. PX is expected to further strengthen, forecast based on the supply and demand outlook with China PX inventory to reduce by 150-200kt in the first quarter of 2022. PX companies may consider to raise plant operating rate but it would still take time for the operating rate to rise substantially. Producers' motivation would only be incentivized when PX-naphtha spread sustains above $200/mt for a longer period.