PX price rises as upcoming polyester demand peak lends support

The most actively traded PX futures contract for Nov delivery on Zhengzhou Commodity Exchange has been rebounding continuously since the middle of August. And it further hiked to approach 7,000yuan/mt, a technical resistance level, tracking the rise in PTA driven up by the unplanned outage of Hengli Huizhou's PTA unit on August 21 morning.

Asian PX spot price also caught up with the rise, advancing to $854/mt CFR China, with spread to naphtha rebounding to $269.5/mt by the close on August 21.

However, the driving force to PX did not come from its fundamentals, as PX supply was increasing with plants recovering.

Beginning from Aug, Shenghong has recovered PX operating rate, and Weilian Chemical has restarted its PX unit after maintenance. Outside China, Idemitsu was restarting its PX unit which was shut unexpectedly earlier, Petro Rabigh's PX plant resumed operations after some delay, and also SK restarted its PX unit. Additionally, Thai Oil and Fuhaichuang are also going to complete maintenance and restart.

Despite Hanwha Total's and Malaysia Aromatics' maintenance, the overall PX plant operating rate stays high with supply increasing.

The recent round of PX price increase is largely driven by positive feedback from the demand side.

China polyester plant operating rate rise gradually with the nearing of demand peak in Sep.

As summer draws to a close, the polyester industry is entering its traditional peak demand season. At this transitional point, the long-awaited support from demand to PX is finally materializing.

With downstream end-use demand for polyester improving slightly beyond expectations, operating rates have rebounded from previously low levels. Additionally, due to relatively low feedstock inventories in the textile sector, restocking demand for polyester PFY increased during the week, leading to a recovery in polyester sales to production ratio.

As of Thursday, China polyester plant operating rate has climbed to 90%, significantly boosting confidence in the raw materials market. Against the backdrop of newly commissioned PTA facilities this year, PX availability has tightened, and therefore, the recovery in polyester operating rate is the core driver to this round of PX price increase.

Upbeat macro economic sentiment fuels in commodity market.

China's "anti-involution" has come under spotlight this summer, Even though the polyester and even chemical industry are not the primary targets of this "anti-involution" trend, they have benefited from the overall strength in the commodity market. The earlier rise in PX prices was partly driven by this sentiment.

This week, market discussions about "anti-involution" have resurfaced, but this time with a direct focus on the chemical industry. Reports suggest that China is preparing for significant reforms in the petrochemical and refining sectors, aiming to phase out smaller and outdated facilities and renovate petrochemical plants over 20 years old.

Simultaneously, South Korea has announced that, amid long-term weak profitability, its petrochemical companies will agree to reduce naphtha cracking capacity by up to 3.7 million tons annually.

These capacity optimization efforts by two major petrochemical producers have once again boosted market expectations of supply reduction in the industry. Even though the implementation and execution of these plans remain uncertain, market sentiment has already been stirred, providing further support for PX price increases.

On August 21, unexpected shutdown of a major PTA plant led to a rapid rise in PTA futures, which in turn drove PX futures higher, with PX even outperforming PTA. Considering that PTA has been destocking since the beginning of the year, and despite the commissioning of new PTA facilities, recent unplanned shutdowns and maintenance at multiple plants have prevented inventory buildup.

As the peak demand season for downstream polyester approaches, the increase in polyester operating rates leads to a swift rise of PTA futures prices and spot basis. For PX, the inventory has decreased significantly since the beginning of the year. And despite the shutdowns of PTA plants, PX spot liquidity has not increased.

Then, can PX prices continue to rise? The key still lies in polyester operating rates. While sentiment-driven boosts to PX prices are always limited, any change in the sentiment may cause disruptions. PX supply and demand fundamentals are favorable this year, and whether the price can ascend further depends on how strong the support from polyester will be.