How will PX be impacted by severe losses in PTA

There has been rumor that a PTA producer in China began selling PX since Aug 1 evening. Though it is not officially confirmed, PX market still got impacted.

Discussion for PX weakened on Aug 2, especially for Sep goods. A deal of Sep goods was concluded at $1085/mt CFR, but during market on close process, bid for Sep goods was quite low at $1078/mt and offer at $1081/mt CFR. Meanwhile, the drop in Oct PX price was smaller, with some trades done at $1074/mt CFR. The spread of Sep/Oct PX narrowed from $12/mt on Aug 1 to $6/mt on Aug 2.

Though the rumor about selling PX has not been confirmed, it would be explainable if it is true.

Since mid-Jul, PTA processing spread has been narrowing rapidly, from 400yuan/mt to less than 100yuan/mt as of end-Jul, indicating severe losses for PTA production despite the slight rebound to 150yuan/mt on Aug 1.

Some PTA plants have completed maintenance earlier. In addition, over 80% PTA capacity have integrated downstream capacity, therefore, future plan of maintenance or cutting operating rates is limited. However, if the severe losses continue, some PTA producers may turn to cutting production or shutting down while selling PX if it is possible, to maximize the gains. Selling PX is a plausible way for PTA producers in response to high PX cost and meager profit, but producers still need to take many things into account in making the decision and if PX price fall back, PTA processing spread would recover some losses.

As for PX, its supply and demand remains strong, unless PTA plants cut production on a large scale. However, PX fundamentals may become less strong with supply growth outpacing that of demand gradually.

According to the statistics compiled by CCFGroup, China domestic PX output reached 2.97 million tons in Jul, hitting record high, and it may further increase to 3~3.1 million tons a month with Sinopec HRCC to restart its 660kt/yr plant and Fuhaichuang to restart its lines with combined capacity of 1.6 million mt/yr in Aug.

Outside China, some plants would undergo maintenance in Aug, while South Korea's S-Oil has restarted its 1 million mt/yr PX plant in late Jul, cushioning the impact from plant maintenance. Gasoline to crude oil price is currently stabilizing outside China, whether it would widen needs to be seen, and therefore, PX supply outside China is expected to stabilize.

In terms of demand, China polyester plant operating rate is unlikely to drop sharply in the near term, but further upward space is limited, and it may keep consolidation at highs. However, there could be uncertainty in PTA plant operating rate. Maintenance plan for PTA plants is limited, but due to the losses, and the impact from typhoon on logistics, some PTA plants may cut operating rates.

In a conclusion, China domestic PX production is expected to increase, while demand is stable but may weaken in some periods, and then PX inventory is anticipated to rise. Yet, the increase in PX inventory would be small as supply growth outside China is anemic and any downstream plant operating rate drop would be slow. PX is immune from heavy pressure of price decline, unless PTA operating rate drops sharply.