PX pares gains amid crude oil pullback and downstream weakness

In the second week of Oct, PX price pared the gains in the first week during China’s National Day holiday. PX price lost about $60/mt on Tuesday and Wednesday to assess at $1042/mt CFR China on Oct 12, down $2/mt from Sep 30. However, Brent crude oil futures advanced 5% over the same period.

Then, what are the reasons behind PX price drop?

1. Rapid pullback in crude oil

During the golden week holiday in the beginning of Oct in China, crude oil price surged on the back of OPEC+ production cuts. After the holiday, however, the pandemic resurged in several regions in China, and People’s Daily stressed the significance of “dynamic zero” policy on Oct 11. In addition, the market assessed that OPEC+’s production cuts could only have a symbolic meaning and its production had not been reaching the quota. Meanwhile, OPEC and EIA both revised down crude oil demand forecast.

2. Weaker-than-expected polyester and PTA

Though crude oil and PX prices hiked in early Oct, polyester sales were lackluster. The sales ratio increased to 110-120% only on Oct 8, but dropped to below 40% on Oct 10. Even the rise in crude oil price was not able to drive down product inventory in polyester plants. With high inventory, some large plants resorted to cutting production.

PTA market was also weaker than expected. Some participants had earlier anticipated that PTA futures could rise to hit daily upper limit on the first trading day after the holiday, but in fact, PTA futures contract was much weaker than anticipated. Afterwards, with some polyester plants reducing production and crude oil declining, PTA spot to futures spread narrowed drastically, and the processing spread also squeezed sharply.

3. PX plant operating rate expected to increase

Though new PX plants are expected to delay to Nov and thus the impact on market is relieved slightly, several plants shut earlier are expected to increase production. Oman Aromatics is restarting its PX plant recently and it has impacted the market with active selling.

In a conclusion, PX market slipped rapidly, paring the gains earlier, as crude oil declined, downstream polyester market was weak while PX supply was expected to increase.

Looking forward, we expect crude oil to keep consolidation. Though Oman Aromatics is restarting its plant, given the time to achieve production and deliver the goods, any increase in supply to Asian could materialize in end-Nov or Dec, and how much of its supply would be consumed in Asia needs to be seen. India’s Reliance ramps up PX plant operating rate, but the increase in exports to China could be limited. Therefore, China PX supply increase would be dependent on new plants. In the meantime, downstream new PTA plant would start, current stocks in PTA plants are relatively low, and with the nearing of 2023 term contract negotiation, PX market could get supported.

However, PTA processing spread has squeezed rapidly, feedstock PX availability is tight, and with the upcoming term contract negotiation, some PTA plants may cut operating rate, then, PX market sentiment could be dampened.