PX plant O/R to increase, but fundamentals remain strong

PX strengthened recently, with price assessment rising from $976/mt on Jan 25 to $998/mt CFR on Jan 26. Bids for Asia-origin Mar goods were up to $994/mt, and offers were even higher with Apr goods quoted at $1018/mt CFR. PX on floating pricing basis was also strong with May goods bid at a premium of $2.5/mt to formula price on Jan 26.

Market players attributed the sharp rise on Jan 26 to NSRP’s cutting the operating rate of its refinery as well as 700kt/yr PX plant in Vietnam due to economics issues. In addition, the refinery was said to have suspended importing crude oil from Kuwait due to tight funds, according to some market source. However, as the refinery is said to resort to Vietnamese government for bailout, and discuss with shareholders to find out the solution, some market players expected the operating rate of the refinery could soon get recovered once the problem is solved. In addition, some Chinese companies have received notice of canceling Feb PX contract from Vietnam, a direct driving force to PX price.

However, the impact from the plant operating rate cut seems to be exaggerated if the price rise is credited only to the canceling of Feb PX contract from Vietnam.

Firstly, production from the plant is estimated at less than 60kt a month with the plant running at full swing. China imports about 30kt a month of PX from Vietnam in recent years, accounting for 3-4% of the total imports each month. The proportion is quite small.

Secondly, China domestic production is expected to increase with PX plants completing maintenance.

Based on the plant restarting progress, China and Asian PX plant operating rates are expected to increase notably in Feb and Mar from currently level in Jan, while the operating may reduce slightly from Feb to Mar.

On demand front, China PTA plant operating rate was forecast based on maintenance schedules. Then, based on estimation for PX and PTA production, China PX imports should be at 1.28 million tons in Jan, 1.02 million tons in Feb and 1.18 million tons in Mar, to get supply and demand balanced. (Supply and demand balanced reflects that domestic production plus imports are equivalent to demand in that month, and the inventory is unchanged.)

However, it is currently expected that PX inventory is likely to reduce in Jan as imports could be less than 1.28 million tons, while may increase in Feb. There would be uncertainty in Mar, with large appetite for imports. PX plant operating rate in Mar could be higher than current estimation with improvement in PX-naphtha spread, if those plants which cut operating rate in Nov-Dec 2021 due to poor economics, raise the run rates in Mar.

Note: The chart above shows China domestic production and demand for PX on monthly basis. The gap between demand and production should be filled by imports. If the imports are higher than the deficit, the inventory would increase in that month, and if the imports are equivalent to the gap, the inventory would be unchanged.

In a conclusion, PX inventory could decrease in the first quarter of 2022, and the reduction would be mainly seen in Jan. Other than the plant issue in Vietnam, PX market is more driven by good supply and demand fundamentals.

Firstly, with no fresh PX plant in the first quarter in Asia, production increase would be mainly contributed by ZPC’s second phase. Meanwhile, Yisheng New Materials is starting up its second 3.6 million mt/yr PTA plant in end-Jan. Therefore, PX supply and demand fundamentals paints a rosy picture.

Secondly, some Chinese PTA plants are expected to enter spot PX market to restock as their contract PX supply ratio is slightly lower in 2022. It would be supportive to sellers in pricing in the backdrop of good supply and demand situation, especially when some plant issue occurs. However, this kind of support would not be long-lasting.