PX trading sideways amid polyester's off-season

As polyester enters consumption off-season, upstream PX seems to have stepped into a period of sideways movement. Apart from the driving force from rising commodity market owing to "anti-involution", PX lacks advancing momentum from fundamentals. PX-naphtha spread briefly approached $300/mt, but then the price and margin both pulled back with volatility easing after the macro economic sentiment softened in late Jul.

Beginning from mid-July, PX supply and demand fundamentals weaken from earlier. ZCE Sep/Jan futures contract spread hovered at around 60-130yuan/mt, Sep/Jan papers spread stabilized in the range of $6/mt to $10/mt.

For PX producers, it is viable under current price and margin. Though the month average price of PX dipped by 0.5% on month to $847/mt CFR China, the average spread to naphtha widened by 2.7% to $267/mt in Jul, this year's new high. It covers the cost for most operational PX units.

Meanwhile, both USD- and CNY-denominated PX-MX spreads remained at levels viable for production based on merchant MX, with the USD spread averaging $108/mt and the CNY spread at 223yuan/mt in July.

From the perspective of operating rates, China domestic PX plant operating rate hovered at around 82% from January to July, little changed year-on-year, while average PTA operating rate decreased by 1 percentage point year on year to 78%, and polyester operating rate rose by 2 percentage points on year to 90% over the same period. In July alone, PX operating rate fell by 5 percentage points on year, PTA declined by 1 percentage point, but polyester increased by 2 percentage points.

Since 2025, there has been no new PX capacity, while supply increase mainly came from short-process units' raising run rates. In contrast, downstream PTA has seen 5.7 million tons of new capacity, and polyester added 2.3 million tons, year to date, reflecting an imbalance in new capacity expansion.

In terms of production growth, PTA production rose by 3.9% on year in Jan-Jul, whereas PX growth was only 1.7%. This has kept PX inventories decreasing for most of the first half of the year.

Polyester operating rate also increased, with average level rising by 3 percentage points during the peak demand season in Q2. Even in the relatively off-season month of July, operating rate remained 2 percentage points higher compared to the same period of last year. The overall stronger downstream demand has provided solid support for PX consumption.

Although polyester operating rate does not decline sharply even during off-season, demand for PX turns less strong, as the recovery in PX-naphtha margin squeezes PTA processing spread, and some PTA plants have announced maintenance plans for August. Moreover, with most near-term demand sated, PX buying from PTA plants remains restricted.

On supply front, some PX plants in China such as Weilian Chemical, Fuhaichuang, and Shenghong, as well as some outside China such as Idemitsu and Petro Rabigh either underwent maintenance or cut operating rates. The overall operating rate has dropped by 5 percentage points on year in China, and fallen by 6 percentage points on year outside China in Jul. PX operating rate has declined to lows unless there's any more disruption. As a result, further upward momentum from demand or supply side is limited.

Then, how long can this sideways market last?

On supply side, it is relatively certain that Weilian Chemical is poised to restart the unit which is under maintenance in early Aug, Shenghong is anticipated to recover operating rate in Aug, and Fuhaichuang is expected to restart in late Aug or Sep. Therefore, even with Fujia Dahua's maintenance in Sep, the overall PX plant operating rate in China is expected to climb up in Aug and Sep, indicating increasing supply (assuming no disruptions from extreme heat or frequent typhoons).

On demand side, while Yisheng and Tongkun have scheduled maintenance for August, intensive PTA plant maintenance is unlikely, as PTA inventory to sales ratio remains neutral to low, and the postponement of US-China tariff issue could be supportive to polyester in the upcoming peak season. The feedback from polyester plant operations should be watched closely.

In the short term, PX is likely to remain sideways market with no clear direction, but the range-bound could be easily disrupted. Whether PX supply can increase as expected, downstream polyester could paint a rosy picture in Sep and Oct demand peak, and how will PTA plants respond to low processing spread should be watched closely.