According to the analysis of PTA’s historical price seasonality, as cost-side support weakens and oversupply pressure increases, there are relatively more cases where PTA is in a downward trend in the second half of the year. The author recommends choosing an opportunity to intervene in short positions in PTA2209 and PTA2301 contracts.
Cost side: Crude oil and PX are driven downward
Global inflation levels are growing strongly, and liquidity tightening continues to put pressure on commodity markets. The U.S. non-seasonally adjusted CPI annual rate in June recorded 9.1%, a year-on-year growth rate that further broke through to a new high and was higher than the 8.1% expected in the previous survey. It was the largest increase since November 1981. The CPI of the 19 countries in the Eurozone also reached 8.1% in May. Overall, inflation in major foreign economies still maintains strong growth. Although the Federal Reserve took measures to curb inflation in June, including raising interest rates by 75 basis points, inflation is still difficult to adjust quickly. Based on the interest rate hike probability forecast released by CME Group, against the backdrop of a sharp rise in U.S. CPI in June and far exceeding expectations, the market generally predicts that the Federal Reserve will announce another increase in the federal funds rate by 75 basis points and an increase of 100 basis points. The possibilities have also increased significantly. In addition, CME Group’s FedWatch Tool shows that there is an 80% chance that the Fed will raise interest rates again by 75 basis points in September. Overall, the Federal Reserve’s policy in the third quarter is likely to continue to turn “hawkish” to prevent the U.S. economy from returning to stagflation. The pace of U.S. interest rate hikes continues to increase, tightening liquidity and continuing to put pressure on the commodity market.
The picture shows the CPI of the United States and 19 countries in the euro zone
The support for demand for refined oil products has gradually weakened, and the trend of inventory accumulation has been obvious. Rising international oil prices and poor global economic conditions have begun to take a toll on oil demand, with oil demand growth slowing in developed economies around the world. In July, monthly reports released by the three major crude oil agencies showed that OPEC did not adjust its demand expectations, but both the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) further reduced crude oil demand. Taking the report released by the EIA as an example, the EIA believes that high oil prices will cause U.S. gasoline consumption from July to October to be lower than previously expected. In July, daily gasoline demand will reach 9.07 million barrels, down 2.2% from the June forecast. EIA’s growth forecast for global crude oil this year has also been lowered due to expectations of a global economic recession. Crude oil demand is now expected to increase by 2.2 million barrels per day, compared with an increase of 3.6 million barrels per day at the beginning of the year. Overall, the recovery of demand for refined oil products is still not as good as before the epidemic, and consumption in the third quarter is also lower than expected, and the support for demand for crude oil has subsequently weakened.
The latest inventory data in the United States shows that refined oil inventories have begun to gradually accumulate. In the week ending July 8, the actual changes in crude oil inventories were 3.254 million barrels, the actual changes in gasoline inventories were 5.825 million barrels, and the actual changes in refined oil inventories were 2.668 million barrels. The increase in gasoline inventories was the largest since the week of January 14, 2022, and the increase in refined oil inventories was the largest since the week of December 31, 2021. Both refined oil inventories and gasoline inventories continued to accumulate significantly beyond expectations. As the peak season for refined oil consumption in the second half of the year gradually passes, the inventory accumulation trend becomes increasingly obvious, which is a negative driver for international oil prices.
The picture shows U.S. refined oil inventories
In the second half of the year, the pressure of oversupply in the crude oil market increased significantly, and the downward shift in price center of gravity exerted downward pressure on energy and chemical products. The monthly reports of the three major crude oil institutions unanimously concluded that the pressure of oversupply in the crude oil market increased in the third quarter. In absolute terms, the Energy Outlook report released by the EIA shows that from June to November, crude oil supply was in excess of 1.32 million barrels per day on average. From a relative perspective, geopolitical risks in the first half of the year made the market question the stability of Russian crude oil supply. However, Russian crude oil production is still growing steadily and significantly higher than expected. In addition, amid expectations of a global economic recession, the recovery of crude oil demand was less than expected. The EIA raised supply and lowered demand, and the peak supply-demand gap expanded from 1.5 million barrels/day in June to 2 million barrels/day. The pressure of oversupply in the crude oil market has increased significantly. It is expected that the downward trend of crude oil will not change in the second half of the year, and the price center of gravity will gradually shift downward. This will also constitute a strong downward driver for downstream energy and chemical products.
The picture shows EIA crude oil supply and demand forecast
PX has many plans to put into production in the second half of the year, and the overall loose supply also poses a downward driver to PTA. Judging from the PX supply situation in the second half of the year, in the medium term of 2-3 months, PX will face the load increase of Jiujiang put into production and Zhejiang Petrochemical and other units. Taking into account the load increase and maintenance information of other devices, the supply increase is around 100,000 tons/month. Judging from the full-year production plan, the domestic PX and downstream PTA production plans are basically matched. The Fuhai unit will be put into operation in October, and the Shenghong unit will be put into operation in November with half of its production capacity of 2 million tons. With the expected intensive commissioning of equipment and a rebound in imports in the fourth quarter, PX will face accumulating pressure. The overall loose supply of PX will drive PTA downward.
Fundamentals: Supply and demand remain in tight balance
On the supply side, cost constraints on PTA’s operating rate have weakened, and production capacity will be put into use in the second half of the year.�Consumption is not enough to support clothing channel dealers to continue to actively replenish their inventories, thus exposing clothing manufacturers to the risk of continued decline in orders. Overall, my country’s textile and apparel exports will fall due to the decline in foreign consumption.
Summary and market outlook
From the cost side, foreign inflation levels are growing strongly, and liquidity tightening continues to put pressure on the commodity market. At the same time, as the demand for refined oil products gradually weakens, the accumulation trend of full-caliber oil inventories is obvious. In addition, the current monthly reports released by the three major crude oil institutions have unanimously concluded that the pressure of oversupply in the crude oil market has increased significantly in the third quarter, and the downward shift in the center of gravity of international oil prices has created a downward drive for energy and chemical products. In terms of PX, the demand drive for MX oil adjustment has weakened, PX has many production plans in the second half of the year, and the overall loose supply of PX has also constituted a downward driver for PTA.
From a fundamental perspective, cost constraints on PTA operating rates have weakened, and the concentrated deployment of production capacity in the second half of the year has also loosened PTA supply expectations. However, new production plans on the demand side are difficult to meet the increase in supply side, and high inventories of finished products will also force the polyester production load to continue to fall, and the overall oversupply pressure on the market will not decrease.
From the perspective of terminal weaving, the overall domestic loom start-up is at a low level, and the industrial chain inventory is high and continues to accumulate. The supporting role for PTA demand is not optimistic. At the same time, foreign markets are facing the risk of economic recession. Affected by the difficulty of clothing channel dealers in continuing to actively replenish their inventories, my country’s textile and clothing exports will fall back in the second half of the year.
Judging from the historical price seasonality of PTA, there are relatively more cases where PTA is in a downward trend in the second half of the year. The author believes that under the adverse factors of weakening cost-end support and increasing pressure of oversupply, the downward trend of PTA will be relatively certain in the second half of the year, and the price is expected to return to the level of 3,000-4,000 yuan/ton. Strategically, it is recommended to choose the opportunity to intervene in short positions of PTA2209 and PTA2301. In addition, we need to pay attention to the risks caused by the rapid recovery of the domestic economy and the centralized price control of supply-side production capacity.
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