PTA spot market tightening, and will the basis rise?

Since November, there's been a downward trend in port inventory, stabilizing the spot basis this week. On Dec 6, mainstream PTA spot transactions occurred around TA2401+5, with some deals at TA2401+10.

On one hand, as prices dipped, polyester factories increased their purchases, accelerating raw material pick-ups. Moreover, the PTA plants in Dalian and Huizhou run at reduced rate, so the cargo arrivals at port also reduced.  

On the other hand, due to a rise in PTA futures prices in mid-November, some supplier locked profits through futures contracts. Consequently, a portion of the available supply had to be converted to warehouse receipts. Currently, the warehouse receipts for December amount to 46,762 lots, equivalent to 233,800 tons of PTA in the spot market, tightening market liquidity.

In late December, the outflow of warehouse receipts will inject liquidity into the spot market. Additionally, some PTA plants will also resume production or ramp up production gradually. Hanbang's 2.2-million-ton PTA plant's restart is delayed, Hainan Yisheng's second 2.5-million-ton PTA line is now operational. Moreover, Fuhaichuang's 4.5-million-ton plant has increased its operating rate to 80%. Yisheng Dahua and Hengli Huizhou's second phase PTA units are expected to resume this week, and Weilian Chemical's 2.5-million-ton PTA plant is projected to resume next week, potentially elevating PTA operating rates to around 80%. In the short term, polyester polymerization rate fluctuate around 90%, displaying resilience.

Hence, beyond essential restocking, there's not much enthusiasm for chasing increased basis. However, the market isn't overly bearish either. While there are expectations for a decline in polyester polymerization rate, the timing and extent of this decline remain to be seen. Presently, polyester inventory pressures are not significant, and profitability remains reasonable, potentially delaying the decline. In addition, several PTA plants are yet to undergo maintenance this year. Overall, PTA inventory accumulation may be limited. Attention is directed towards the implementation of PTA plant maintenance in the future.