Unexpected plant shutdown could barely lift PX price

On Friday afternoon, China PX futures shrugged off the impact from downstream polyester production cuts, and moved up with Sep futures contract closing at 8362yuan/mt, up 128yuan/mt from the low point on that day, with news that CNOOC Daxie shut its 1.6 mln mt/yr PX plant unexpectedly and the shutdown could last for a long period.

However, Asian PX price still dropped with CFR China price assessment down by $3/mt on May 10. During the trading hours, sellers were relatively active, while buyers remained cautious in catching up with the rise. Then, during the night trading session on Zhengzhou Commodity Exchange on May 10 evening, PX futures consolidated at highs but did not further rise.

PX plants entered turnaround peak season in and outside China in Apr, with several plants undergoing maintenance. In addition, some plants in China were shut unexpectedly in mid-Apr due to technical issue. PX price consequently rose, but then fell back.

Besides from the decline in crude oil price, PX price was also weighed lower by weak fundamentals which could not be altered by the occasional unexpected plant shutdown.

During the turnaround season, PX plant operating rate has dropped significantly. However, downstream PTA plant turnarounds are also intensive in China, with average operating rate down from high point of 84% in early Mar to 68% in mid-Apr. Despite the rebound in late Apr, PTA operating rate declined again in May. In addition, polyester plant operating rate has also fallen since late Apr, due to sluggish sales, increasing inventory as well as environmental protection requirements.

Therefore, though PX inventory is expected to reduce in Apr-Jun, the pace of reduction would be subdued by weakening of demand and PX price is in the lack of advancing momentum.

Those new plants started last year had gradually ramped up operating rate to highs in the fourth quarter of 2023, and then China PX inventory has been increasing for nearly half a year, rising by about 800kt. However, the reduction of inventory during Apr-Jun is estimated to reach 400kt, much smaller than the earlier increase.

Meanwhile, as most China PTA plants have increased the ratio of contract goods, requirements for spot PX procurement have reduced. With the ratio of China local materials contracts increasing, USD goods would be under greater selling pressure. In addition, the recent deviation of central parity rate and selling rate of RMB against USD also weakens the attraction of USD goods to Chinese buyers. Moreover, some PTA plants outside China would begin maintenance in Jun, and therefore, inflows of spot PX goods to China could increase unexpectedly.

The shutdown of CNOOC Daxie's PX plant could lead to production loss of 90-100kt per month, which accounts for 3% of domestic production.

The shutdown of its PX plant would not affect other facilities, and CNOOC Daxie would turned to selling of MX in the market. Then, MX price would be impacted with increase of supply, which would lead to widening of PX-MX spread.

On May 10 afternoon, MX price dropped rapidly in East China, down by 140yuan/mt to be assessed at 7500yuan/mt. As a result, PX-MX price spread rebounded after the persistent squeeze earlier. After CFR China PX converted to yuan price, its spread to MX rebounded to 780yuan/mt on May 10.

Some PX plants in China earlier cut production due to squeeze of PX-MX spread, but now, if the spread continues widening, some plants may increase the operating rates.

In a conclusion, as PX inventory reduction could be smaller than estimation, spot supply availability remains ample, feedstock inventory at PTA plants is relatively high and outlook of demand is cautious, PX price got barely lifted by the unexpected plant shutdown.