In the past half month, PTA has ended its downward trend, and its rebound from the low has reached 9.5%. On the one hand, crude oil is oscillating at high levels, and there is a need for rebound and repair under the low valuation of PTA. On the other hand, PTA’s fundamentals also show signs of marginal improvement. However, we believe that the short-term rebound of PTA cannot change the long-term weak trend, and PTA prices will still be under pressure in the future.
Costs are strong in the short term
In terms of crude oil, the recent price oscillation has strengthened. On the one hand, it has been affected by the surge in natural gas prices, and on the other hand, EIA inventory has dropped sharply and exceeded expectations. The rise in natural gas is mainly affected by Russia’s reduction in natural gas supplies to the European Union. If the supply reduction continues into the winter, the European continent, Russia’s largest export market, may be extremely short of fuel. In addition, EIA weekly data showed that commercial crude oil inventories decreased by 4.523 million barrels, SPR inventories decreased by 5.604 million barrels, gasoline inventories decreased by 3.304 million barrels, and distillate inventories decreased by 12,000 barrels. Destocking supported oil prices. Overall, crude oil is still under strong and weak expectations, maintaining a wide range of oscillations, with the center of gravity shifting downwards.
In terms of PX, the supply in Asia is still tight in the short term, and PX prices have seen a significant upward recovery. As of July 7, the PX operating rate in Asia was at 72.7%, which has been falling for more than a month. It is currently at a low level during the same period in history. The output rate of PX devices in Japan and South Korea is still low. The import volume of PX in June was 713,000 tons, a further decrease from the previous month. Under the current low operating conditions, the import volume of PX will remain at a low level in the short term. Under the support of low supply, the short-term supply and demand pattern of PX is favorable, and profits have once again expanded at a low level. The current price difference between PX and naphtha is at US$358/ton, and the lower point has been restored to close to US$100/ton. However, in the long run, the domestic supply of PX is still loose. If Japanese and Korean devices increase the burden under high profits, the forward surplus pattern of PX will intensify. Therefore, PX is also strong in the near term and weak in the far range.
Taken together, cost-side crude oil and PX provide strong support for PTA prices in the short term, but long-term cost-side pressure is not small.
Margins of supply and demand improve
There are signs of marginal improvement in PTA supply and demand. In terms of supply, in the short term, Line 3 of Yisheng Ningbo has been parked, Line 4 has been raised to full capacity, Yishenghua 225 has been reduced to 60% operation, Baihong has been reduced to 80%, and PTA’s latest load has been adjusted to 69.1%, indicating a contraction in supply. Hengli planned maintenance in August, and supply continued to run at a low level. However, PTA currently has very little production capacity that has not yet implemented its annual maintenance plan. In the long term, there will be supply pressure from increased operating rates and the launch of new production capacity. In terms of polyester, after the joint production cuts of polyester filament manufacturers and profit concessions from upstream links in July, the pattern of high inventory, low profits, and weak demand for polyester has shown a marginal improvement. Cash flow has improved, factory inventory has been reduced, and polyester production has increased slightly to 79%. The terminal order situation has improved, the weaving start-up has increased slightly to 55%, and the demand for PTA has increased month-on-month. However, the background of long-term weak consumption is difficult to change for the time being. Gray fabrics still face the pressure of high-yield finished product inventory, and demand is under long-term pressure.
From a comprehensive perspective of both supply and demand, the short-term PTA supply and demand margins have improved, but the long-term supply and demand pattern is not good.
The picture shows the operating rate of PX Asia (unit: %)
Main contract switching
Generally speaking, both cost and supply and demand currently provide strong support for PTA in the short term. However, when the main contract switches to the forward 2301 contract, the fundamentals are still weak, and PTA is still under pressure in the long term. It is recommended to short the PTA2301 contract on the rebound.
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