In the second quarter, the PTA market rose first and then declined. The PX supply was tight due to maintenance, and suppliers repurchased spot goods. In mid-to-early April, PTA prices fluctuated and rose. The 09 contract hit a new high for the year, and the basis remained strong at high levels. In late April, as the overseas banking crisis deepened, crude oil dragged down PX prices sharply, cost-side support collapsed, and the PTA market followed suit with a sharp retracement, and the basis also narrowed significantly. As major factories started maintenance, downstream polyester production picked up, and the cost side stabilized, PTA stabilized and rebounded slightly from mid-May.
Figure 1: Futures-to-Current Basis Figure 2: Monthly Price Spread
Data source: wind, Guosen Futures Data source: wind, Guosen Futures
1. Production capacity continues to expand, and supply is elastic under low processing fees.
Against the background of high production, although the PTA unit maintained low-load operation, the output from January to May still reached 24.167 million tons, a year-on-year increase of 7.2%. Affected by the macro environment, the recovery on the demand side was lower than expected. In the first half of the year, PTA showed the characteristics of high supply and weak recovery, and the market supply and demand were loose and accumulated. As of June 30, the social inventory of Zhuochuang caliber PTA was 3.07 million tons, accumulating 1.072 million tons compared with the end of last year. In terms of exports, the cumulative exports from January to May were 1.686 million tons, a year-on-year increase of 1.1%. The export/production ratio in May reached 8.7%. Export fluctuations have become an important marginal variable affecting the supply and demand of PTA.
Figure 3: PTA operating rate seasonality (%) Figure 4: PTA social inventory (10,000 tons)
Data source: Zhuochuang, wind, Guosen Futures Data source: Zhuochuang, wind, Guosen Futures
High production is the label of this year’s PTA market. 7.5 million tons of new production capacity has been released in the first half of the year. Two more units will be put into operation in the second half of the year. Among them, Hengli Huizhou 2# may start operation in July at the earliest, and Yisheng Hainan 2# is planned to be launched in April. Quarterly production. Most of the PTA production plans have been implemented during the year, and the incremental pressure has decreased slightly in the second half of the year. However, from the perspective of the industry chain, the expansion speed of PTA in 2023 is significantly higher than that of polyester. The market supply is expected to be under pressure, and PTA factories will still adjust flexibly. The production and supply side maintain high elasticity, processing fees are difficult to significantly expand, and the market frequently switches between inventory accumulation and destocking.
Table 1: PTA capacity expansion plan in 2023
Data source: Zhuochuang Information Guosen Futures
2. Weak support from downstream demand, pay attention to changes in polyester exports
In terms of foreign trade, textile and clothing exports from January to May were US$118.20 billion, a year-on-year decrease of 5.3%, of which textile exports were US$56.83 billion, a year-on-year decrease of 9.4%, and clothing exports were US$61.37 billion, a year-on-year decrease of 1.1%. As the interest rate hikes in Europe and the United States have not yet ended, residents’ consumption power and willingness have declined, and overseas demand has weakened year-on-year. Added to the high base last year, textile and clothing exports fell year-on-year in the first five months. In terms of domestic demand, cumulative retail sales from January to May were 561.9 billion yuan, a year-on-year increase of 14.1% and an increase of 0.9% from 2021. As the disruption caused by the epidemic has been lifted, domestic consumption has gradually recovered this year. However, due to the uncertainty of employment and income expectations, the recovery has been weaker than expected, especially when the data in May weakened significantly.
Figure 5: Monthly exports of textiles and apparel (USD 100 million) Figure 6: Domestic retail sales of textiles and apparel (RMB 100 million)
Data source: wind, Guosen Futures Data source: wind, Guosen Futures
Data show that in the first half of the year, weaving market demand improved month-on-month, but was still weak year-on-year. The industry load was only slightly better than in 2020 and 2022, and far lower than the same period in 2019 and 2021. Looking at the stages, construction started to pick up steadily after the Spring Festival, reaching the high point of the year in early March. However, due to cost and demand pressures, the industry load then dropped all the way to the end of April. After May Day, domestic trade orders improved, and some parking devices were restarted. , the weaving operation started to rise moderately to around 65%. Although the terminal recovery was lower than expected, the low start-up of weaving also restricted supply, and finished gray fabric inventories continued to remain low in the first half of the year.
Figure 7: Seasonality of loom operations in Jiangsu and Zhejiang (%) Figure 8: Shengze gray fabric inventory (number of days)
Data source: Zhuochuang, wind, Guosen Futures Data source: Zhuochuang, wind, Guosen Futures
In comparison, the performance of the polyester market has exceeded expectations, with high production and high exports being its main features. In terms of production capacity, the polyester industry’s new production capacity this year has reached 5 million tons, an increase of 92.3% compared with the same period last year (2.6 million tons). In the second half of the year, it is expected that more than 4 million tons of production capacity will be put into operation, and the annual production capacity growth rate will reach 12.7%. In addition, according to Zhuochuang statistics, the cumulative exports of polyester from January to May were 4.455 million tons, a year-on-year increase of 16.8%, while the output was approximately 24.383 million tons, an increase of only 1.2%, and the export/production ratio reached 18.3%. We see that, boosted by the phased improvement in terminals, the market will gather momentum after mid-May.��The steady rebound in construction starts and the continuous release of superimposed new production capacity have formed strong support for the rigid demand for PTA. However, the high growth in exports of polyester products is related to the launch of BIS certification in India. Some companies rushed to sell goods in advance, resulting in a 219% year-on-year increase in exports to India in the first five months. However, with the implementation of BIS certification in India, the export end may be affected to a certain extent. Influence.
Figure 9: Polyester start-up seasonality (%) Figure 10: Polyester export seasonality (10,000 tons)
Data source: Zhuochuang, wind, Guosen Futures Data source: Zhuochuang, wind, Guosen Futures
3. Strong cost support, medium and long-term PXN storage compression is expected
Due to the unexpected load reduction of major domestic manufacturers and the maintenance equipment has not yet returned, the PX load in Asia and China at the end of June was 69.7% and 73.2% respectively, both at the lowest level in the past five years. The supply of aromatics in the Asian market is low, and the demand for oil adjustment in North America has led to a high price difference between the United States and Asia. In June, the price difference between Far East PXN widened again to around US$430, which gave PTA strong cost support. At present, the United States is in the peak season of oil consumption, the gasoline crack price difference remains high, the xylene arbitrage window between the United States and South Korea is open, and the supply of supplies in the Asian market is tightening. The PXN price difference is expected to remain strong in the third quarter. However, demand has weakened seasonally in the fourth quarter, U.S. refined oil products have begun a storage accumulation cycle, and the logic of oil adjustment is expected to weaken. In the medium and long term, there is convergence pressure on PXN price spreads, but attention needs to be paid to the supply impact caused by unexpected device shutdowns, and the absolute impact of crude oil on PX price impact.
Figure 11: Xylene regional price difference (USD/ton) Figure 12: Asia PX/naphtha cracking price difference (USD/ton)
Data source: Zhuochuang, wind, Guosen Futures Data source: Zhuochuang, wind, Guosen Futures
Conclusion and suggestion
In the first half of the year, the polyester industry chain was put into production, domestic demand showed a weak recovery, and downstream polyester exports performed well. However, terminal textile and clothing exports declined year-on-year. The profits of the industry chain were concentrated in the PX link, while PTA and polyester processing fees continued to be sluggish. In the medium term, the pace of industrial chain production is slowing down, and downstream demand is resilient but weak in support. Against the background of low processing fees, PTA supply remains highly elastic, fundamentals are not driving a strong trend, and the triggering point for the market mainly comes from costs. Due to terminal fluctuations and unexpected supply shocks, PTA is expected to fluctuate in the 5000-6000 range.
Risk warning: crude oil prices plummet and maintenance falls short of expectations.
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