PX supply and demand balance forecast for Q4

Beginning from May this year, new PTA units coming on stream as well as relatively high polyester plant operating rate in China have been supporting PX price. In addition, PX supply has been affected by continuous plant maintenance in and outside China. Amid good fundamentals, PX-naphtha spread has been hovering in the range of $230-300/mt for 4 months. Then, what's the prospect for the fourth quarter?

Plant maintenance in the fourth quarter

The combined capacity of plants with clear maintenance plans amounts to 6.66 million tons, mainly in Chinese mainland. The capacity of each plant with maintenance plan is smaller than 1 mln tons, and therefore, overall PX plant operating rate in and outside China is expected to increase despite the maintenance.

Meanwhile, multiple new reformers are scheduled to commence operations in the third and fourth quarters. Among those, only CNOOC Daxie will explicitly increase PX operating rate relying on the new reformer, while others such as Yulong Petrochemical will increase merchant MX supply to the market.

Even if this incremental MX supply cannot be fully converted into PX due to factors such as demand, it significantly enhances the production flexibility of PX plants. When troubles occur, plants can quickly procure toluene and MX from the market to minimize production disruptions. It also reduces volatility in the PX market to some extent.

Therefore, in the absence of unexpected issues, both visible and hidden PX supplies are gradually increasing. However, this does not necessarily imply that the PX supply-demand balance will be unfavorable in the fourth quarter.

As mentioned above, strong demand-side support has been a key factor behind PX's robust performance since the second quarter. For the rest of the year, limited PTA plant capacity is scheduled for maintenance, and another new 3 million tons PTA unit from Xinfengming is set to commence operations in the fourth quarter. If PTA output remains high, it will underpin the demand for PX.

When calculating the demand for PX based on PTA and polyester production, PX inventories relative to PTA are still expected to decline in the fourth quarter, with an average monthly decrease of around 30,000 to 40,000 tons from September to December. However, the performance relative to polyester is weaker, with PX inventory accumulation starting in November.

Therefore, in terms of direct demand, PX is unlikely to decline significantly yet. Nevertheless, attention must be paid to feedback from the polyester end. Against the backdrop of significant destocking in PX and PTA this year, particularly the reduction in PTA inventories, PTA plants have somewhat limited operational flexibility. Until inventories are rebuilt, polyester operating rates will become the primary driver for the upstream sector.

For PX, the materializing of the polyester peak season has injected confidence into the market. However, to maintain current profitability or even improve will require stronger support from demand.