PX shows signs of recovery amid improving fundamentals

The post-holiday macroeconomic sentiment continues to improve. On May 7, China's central bank introduced a comprehensive package of financial policies. The meeting between China and the U.S. to discuss tariff issues is upcoming, further alleviating market concerns about the future demand expectations for polyester and the end-products.

PX-naphtha spread has gradually rebounded from a low of $160/mt in mid-April to around $200/mt. To some extent, this reflects the market shifting its focus back to the fundamentals of the industry, trading based on the near-term supply and demand dynamics of PX.

1. Poor profitability leads to increased unplanned production cuts in China and overseas PX units

Due to weak blending demand and a decline in benzene-related profitability since the beginning of the year, the overall economic performance of refinery has significantly weakened. From the end of the first quarter into the second quarter, multiple China domestic and overseas refineries have reduced operating rates of reforming units and downstream PX facilities to varying degrees. However, at that time, the impact of PX supply cuts on the market was relatively muted due to the tariff-related shocks to demand expectations.

However, as profitability continued to deteriorate, the number of PX plants operating at reduced rates increased. According to CCFGroup statistics, as of May 7, the total affected PX capacity in the second quarter-both domestic and overseas-has approached 13 million tons, with unplanned production losses equivalent to approximately 700,000 tons. The frequent unit rate cuts have also led to a noticeable tightening of spot market supply.

2. Polyester operating rates exceed expectations, PTA processing spread recovers

Concerns over tariffs gradually eased, delaying market worries about downstream demand contraction. Additionally, after the earlier sharp drop in raw material prices, polyester plants began speculative procurement, leading to high operating rates. As a result, PTA got supported, with processing spread to PX rebounding obviously.

The average monthly PTA-PX processing spread in April rose 20% from 288yuan/mt in the first quarter to 346yuan/mt.

Under these circumstances, the maintenance plans for some PTA plants in May and June have also become uncertain. The likelihood of postponements for plants such as Xinfengming and Tongkun has increased, and market rumors about delayed maintenance at certain PTA units have further reinforced PX demand expectations for the second quarter.

At the same time, spot market buying interest has noticeably improved. Over the past two days, some major PTA producers have begun actively inquiring about PX spot cargoes. Against the backdrop of already tightening spot liquidity, this has driven up discussions for Jun PX spots on formula pricing basis.

In mid-April, June spot transactions were concluded at discounts of $7/mt or $8/mt, but as of May 7, deals have already risen to discount of $4/mt, with potential for further increases in the near term.

Overall, with the continued improvement in PX's fundamental outlook, current supply-demand dynamics suggest that PX inventories will decline by over 500,000 tons from May to July, with a total reduction of more than 800,000 tons from January to July-providing solid support for the rebound in PX-naphtha spread.

However, whether PX-naphtha spread can surpass previous highs or even break through the $250/mt level remains uncertain due to lingering pressures.

Firstly, supply could increase. Some previously rate-cut plants may ramp up production-especially those consuming MX-as PX prices recover. Secondly, demand-side uncertainties persist. The ongoing tariff dispute remains volatile, and it remains unclear whether the upcoming China-U.S. talks will meet market expectations and alleviate demand concerns.

Additionally, a sustained rebound in PX-naphtha spread would inevitably squeeze PTA processing spread, potentially prompting PTA plants to proceed with maintenance shutdowns-which would, in turn, weaken the pace of PX inventory reduction.