Crude oil prices rose sharply during the Spring Festival holiday, and PTA futures gapped higher after the holiday. At present, PTA’s cost-side support is still strong, while the supply-side pressure is not great; polyester has seasonal inventory accumulation, but it is expected to boost demand after the terminal resumes work. The short-term contradiction between PTA supply and demand is not big, and the fundamentals are still bullish.
Obvious cost support
Since December last year, international oil prices have been soaring and are still hovering around US$90 per barrel recently. Driven by this, the cost of PTA has increased significantly. The PX end has risen significantly with oil prices, reaching a high of US$1,000/ton before the Spring Festival. In mid-December 2021, the processing difference between PX and naphtha dropped to a low of US$118/ton, and the market load subsequently dropped sharply. As the operating rate of the downstream PTA link increases, the supply and demand side of PX improves, and the processing difference is significantly repaired. The current price difference between PX and naphtha has reached a high of US$250/ton in the past six months.
Although nearly 10 million tons of new PX production capacity is expected to be put into production this year, the production time is mostly concentrated in the third and fourth quarters, and the first half of the year is a window period for PX production. At the end of January, many units such as Sinochem Quanzhou, Zhejiang Petrochemical, and Fujian United restarted, and the PX load increased, which was lower than the same period in the previous two years. It is expected that PX will continue to be strong in the first quarter, which will provide certain support for PTA prices.
There is not much pressure on the supply side
In recent years, with the release of large-scale refining and chemical industry, the space for PTA spot processing fees has narrowed, and the competitiveness of many small and medium-sized equipment has weakened. As of now, the total number of devices on the market that are under long-term shutdown (stopping production for more than half a year) has reached 8.315 million tons, accounting for 11.9% of the industry’s total production capacity.
At the end of January this year, the second phase of Yisheng New Materials’ equipment was put into operation, and the current load is operating at around 50%. However, recently, Yisheng Ningbo’s 2 million tons and the first phase of new materials 3.6 million tons units have been overhauled and operated with load reduction, which has offset the pressure of increasing supply-side production capacity in stages. From March to May last year, due to the significant reduction in PTA processing fees and the large volume of industry maintenance, these devices will have certain maintenance needs in the later period, and there is not much pressure on PTA supply.
The current PTA spot processing fee is around 500 yuan/ton, which is significantly lower than in January. However, since the current operating load of the polyester market is at a relatively high level, most of the other new PTA production capacities will be put into operation in the second half of this year. In the medium term, there is limited room for PTA processing fee reductions.
Terminal consumption needs to improve
Maintenance of polyester equipment was not intensive around the Spring Festival this year. The current average operating rate is around 83%, and some equipment is still being restarted. Due to the recent mismatch in upstream and downstream production, polyester manufacturers have rapidly accumulated inventories. Filament inventories are 5-7 days higher on average than before the Spring Festival, and will continue to rise in the short term. Against the background of poor production and sales, polyester factories have limited efforts to raise prices, and filament cash flow has shrunk significantly, with FDY having lost money again.
According to the resumption time of previous years, the centralized resumption of production of terminal weaving enterprises will not occur until after the fifteenth day of the first lunar month. The number of downstream stocking days before the Spring Festival is not high, and there may be a certain demand for inventory replenishment when work resumes after the holiday. This will boost the demand for polyester and be conducive to the digestion of polyester inventory.
To sum up, the pressure at the PTA supply end is not obvious. At present, the cost side has strong support for PTA prices. In the absence of a sharp drop in crude oil prices, PTA futures prices are still expected to maintain a strong oscillation situation.
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