Despite solid fundamentals, PTA price falls persistently

Since mid-September, PTA has entered a downtrend, with spot prices falling from 6,445yuan/mt to 5,710yuan/mt, marking an 11% decrease. However, during this period, Brent and WTI crude oil prices only fell by 4.4% and 5.8%, respectively. Interestingly, PX prices experienced a drop of 12.4%, slightly higher than PTA.

Analyzing the supply and demand dynamics, PTA remains in a state of balance. Several PTA plants, including Ineos, Yisheng New Materials and Hengli, have undergone maintenance, which brought down PTA operating rates to around 80%. On the demand side, there's still some resilience in the short term. Polyester polymerization rate fluctuate around 90%, and non-polyester demand, along with exports, is expected to keep PTA in a relatively balanced state for October. Thus, under this basic support, PTA margins have slightly improved.

However, looking ahead, the landscape appears different. In November, Yisheng Hainan is set to introduce a new 2.5 million-ton unit, while Hanbang's 2.2 million-ton unit is expected to restart. Moreover, Yisheng Ningbo is scheduled for maintenance in November. Despite these variables, PTA production is projected to remain at a high level. The anticipation of increased stocks has prompted traders to be more active, causing a faster decline in the basis.

From a cost perspective, the situation in the Middle East has impacted crude oil prices, resulting in volatile fluctuations. While aromatics prices declined as the demand from blending oil weakened. Within the recovery of margin in TDI process, the demand for toluene and xylene for chemical production has increased. This has led to a potential boost in PX plant operating rate, causing a compression in PX-naphtha spread to around $350/mt, reaching the lowest point since April. However, if there aren't significant unexpected maintenance issues with PTA plants, it is expected that the extent of PX stockpile accumulation will remain rather limited. Consequently, the downward pressure on PX-naphtha spread may slow down.

In the short term, the industry's fundamental contradictions have not yet escalated. PTA and PX supply is expected to be ample, but polyester product inventory accumulation is limited, and the cash flow is tolerable, so the polyester polymerization rate still display resilience. If no significant fluctuations occur in crude oil, PTA prices may keep consolidation. However, in the medium term, cost considerations and demand fluctuations need attention.