Disparity between supply-demand and PTA market liquidity

The PTA plant operating rates recovered to around 85% in December, but due to the recent cold wave affecting ports, Yisheng cut the operating rate of its PTA plants with a total capacity of 11.4 million tons to 70%, likely to last for 3 days. The specific recovery time remains uncertain, leading to a decrease in PTA plant operating rate to 81%. Towards the end of the month, a 2 million ton PTA plant in South China plans for maintenance, yet PTA operating rates are anticipated to remain at around 80%. Based on the projected average monthly polyester polymerization rate of 90.3%, PTA inventory is estimated to add 200,000 tons in December.

Despite this estimate, the actual spot availability for December remains tight, and the anticipated relief has been continually delayed. The basis has remained steady around TA2401+15. 

During the first half of December, the supply of main port goods was tight due to demand for delivery for futures warehouse receipts with some deals done at TA2401+25. Although the goods from futures warehouses gradually entered the market in the latter half of the month, hindrances from the cold wave restricted the southward movement of PTA from Dalian, contributing to overall tightness in availability. Consequently, raw material inventories at polyester plants notably decreased. This led to heightened logistics concerns for both traders and polyester manufacturers by mid-December.

Presently, there has been a slight improvement in logistics for Northern routes, with shipments from Dalian gradually resuming. However, considering the concentrated loading and transportation capacity, the actual improvement in PTA availability still takes time, especially considering the impact of weather and other factors.

Apart from the planned maintenance of a 2 million ton capacity plant of Yisheng Hainan in late December, no other maintenance plans have been reported. With the approach of the Chinese New Year, estimated monthly stockpiles from January to February could accumulate around 400,000 tons. This seasonal stockpile is expected to exert significant pressure.

The difference between supply and demand and logistic constraints might persist in January and February. The ongoing contract negotiation appears slow, indicating major suppliers' preference for spot transactions. Besides weather impacts on logistics, the pace and method of supplier shipments will significantly influence spot market availability. If there is continued demand for the TA2401 contract delivery, the supply of main port goods may reduce temporarily, which will support the basis. In addition, regional supply and demand in January and February also require attention. Supply and demand are generally in surplus from January to February. However, due to different pace of shutdowns in polyester plants, regional surplus pressures might differ, potentially reflecting in basis among the sources.