After May Day, terminal weaving orders improved, and polyester loads rebounded counter-seasonally. The PTA industry has experienced two rounds of production cuts and load reductions, and social inventories have declined for three consecutive months. Expectations for the Federal Reserve to raise interest rates in July weakened, the U.S. dollar index plummeted, and Saudi Arabia extended production cuts and Russia promised to reduce exports. International crude oil prices exceeded US$80 per barrel. At the same time, PX performed strongly under the influence of aromatics oil adjustment logic and typhoon weather. In the context of cost, supply and demand and macroeconomic favorable resonance, PTA increased its positions and increased its volume last Friday and exceeded the 6,000 mark.
Macroeconomic atmosphere improves & destocking is expected, international oil prices break through 80 mark
The Federal Reserve is nearing the end of raising interest rates. The Federal Reserve raised interest rates by 25bp in July as scheduled, to a 22-year high. Powell reiterated his determination to fight inflation and his expectation not to cut interest rates this year. He no longer expects a recession in the United States or a soft landing for the economy. The market expects that interest rate hikes will most likely stop during the year, and the timing of the first interest rate cut may be postponed to the second quarter of next year. The U.S. core PCE price index in June recorded an annual rate of 4.10%, the smallest increase since September 2021; the U.S. core PCE price index in June recorded a monthly rate of 0.2%, the smallest increase since November 2022; U.S. labor force in the second quarter The cost index grew at a quarterly rate of 1%, the slowest growth rate in two years. U.S. inflation data continues to cool, and if this trend continues, it will provide evidence for the end of the Fed’s interest rate hikes.
The data reflects the strong resilience of the U.S. economy. The number of people filing for unemployment benefits in the United States for the week of July 22 was 221,000, the lowest since the week of February 25, 2023. The initial annualized quarterly rate of U.S. real GDP in the second quarter was 2.4%, higher than market expectations; U.S. durable goods orders recorded a monthly rate of 4.7% in June, the largest increase since December 2022. The outstanding performance of economic data paves the way for higher interest rates for a longer period, but on the other hand, it also reflects that the U.S. economy still has strong resilience despite continued interest rate increases. Suspension of interest rate increases or the beginning of interest rate cuts will be conducive to the growth of crude oil demand. . Recently, the country has successively issued a series of policy documents to revitalize the economy and promote consumption, and the macroeconomic atmosphere has improved, which is conducive to the recovery of domestic crude oil demand.
Saudi Arabia and Russia cut supply, and the oil market is expected to destock. Saudi Arabia has promised to carry out a separate additional production cut of 1 million barrels per day in July on the basis of voluntary production cuts, and will extend the unilateral production cut of 1 million barrels per day to August. The market estimates that Saudi Arabia may extend the voluntary production cuts. The 1 million barrels per day operation was extended to September. Russia said it will fully fulfill its production reduction obligations with OPEC in August and plans to reduce oil exports in August by 500,000 barrels per day, a reduction equivalent to 1.5% of global supply, bringing the total production reduction promised by OPEC to 5.16 million barrels. U.S. crude oil production growth slowed. In the week of July 28, the total number of oil rigs drilled in the United States was 529, compared with the previous value of 530, marking the eighth consecutive month of reductions in oil drilling equipment. U.S. crude oil production remained at 12.2 million barrels per day, the same as at the beginning of the year. U.S. crude oil production does not rule out the possibility of continuing to decline in the second half of the year. UBS estimates that the market gap in June will be 700,000 barrels per day, and that the gap in July and August will reach about 2 million barrels per day. The size of the market gap in September will depend on whether Saudi Arabia will extend the additional 1 million barrels per day production cut. Until September; the crude oil market is in short supply, and Brent oil is expected to rise to US$85-90 in the next few months. Goldman Sachs believes that global oil demand reached a record level in July. It is expected that in the context of OPEC production cuts and oil consumption reaching a record high, the global oil market will shift from surplus to shortage.
PX supply and demand are tight & short-term typhoon impact, prices remain strong
Chart 1 PX price and PXN spread
Data source: Wind, Capital Futures Research Institute
This year’s domestic planned new PX production capacity of 7.7 million tons has been put into production. Since the PTA production capacity base is larger, calculated according to the production ratio, the overall supply of raw materials throughout the year is not loose. Since July, U.S. EIA gasoline inventories have been declining continuously, U.S. gasoline cracking prices have risen again, demand for toluene and xylene in oil products remains strong, and U.S.-Asia toluene and xylene price differences have risen. Overseas PX operating rates continue to be low, and PX exports to the United States, which had been suspended for two months, resumed. From July 1 to 20, South Korea exported 30,000 tons of PX to the United States. In addition, the recent typhoon weather in coastal areas has had a greater impact on port logistics. The intensity level of this typhoon was relatively high. Shipping operations of some companies in the South China and East China markets were suspended one after another, and navigation on the Yangtze River was temporarily closed. PX still maintains a tight pattern. As of July 28, the CFR Chinese PX price was at US$1,097/ton, an increase of US$121/ton from the beginning of the month, and the PXN price difference was at a relatively high level of US$458/ton.
Terminal orders improve, weaving and polyester loads remain high
Chart 2 Domestic polyester load
Data source: CCF, Capital Futures Research Institute
New orders for terminal weaving were basically stable in June, with a slight rebound at the end of the month. On the one hand, terminal factories still have expectations for peak season demand in the third quarter; on the other hand, affected by power cuts and expectations of load reductions during the Asian Games, some domestic demand preparations are ahead of schedule. In the traditional off-season, the printing and dyeing operations of stretch looms in Jiangsu and Zhejiang remain at a relatively high level, and raw material procurement remains in rigid demand. Current equity inventory analysis of POY, FDY and DTY in Jiangsu and Zhejiang polyester factories�On days 14, 14.8, and 30.9, the overall price is at a neutral level. In terms of polyester exports, Indian officials announced that the implementation time of BIS certification for polyester filament FDY (IS 17261:2019) and POY (IS 17262:2019) will be postponed to October 5, 2023. Recent orders in India have certain restrictions on delivery time. In order to meet the shipping schedule, most orders require delivery before mid-to-late August. It is expected that the export volume of polyester yarn in August will reach the highest level in the year. Terminal orders improved, polyester inventories were neutral, exports increased, and polyester loads remained at a high of 93.5%.
There is a lot of new PTA production capacity, but supply is still uncertain.
Chart 3 PTA spot processing difference
Data source: Wind, Capital Futures Research Institute
This year, China plans to add 14.5 million tons of new PTA devices, and the production capacity growth rate is expected to reach 19.5%. Half of the devices will be put into operation from the fourth quarter to the end of the year. By then, PTA will face a greater impact from new production capacity, and the processing gap is expected to remain low. At present, the spot processing difference of PTA has been reduced to an extremely low level of less than 100 yuan/ton. Pay attention to the possible unplanned changes in PTA equipment due to the periodic tight supply of raw material PX under low processing differences. In addition, due to the relatively concentrated supply of goods, the shipping rhythm of mainstream suppliers and their repurchases in the spot market will affect spot liquidity. On the eve of the delivery of the May contract, spot circulation was temporarily tense, and the mainstream supply basis at the main port once reached more than TA09 500 yuan/ton. As delivery ended, the PTA basis fell rapidly. In the later period, attention will be paid to the disturbance of spot circulation conditions to the market’s periodic supply and demand on the eve of the delivery of the 9 contract.
Summarize:
Taken together, the macroeconomic atmosphere has improved recently, there is a gap in global crude oil supply and demand in the second half of the year, and international oil prices have exceeded the 80 mark. Under the influence of oil demand logic and short-term typhoons, PX supply and demand remain tight, PX absolute prices and PXN prices remain strong, and there is strong support on the cost side of PTA. In the short term, the PTA load increase is slower than expected, and factors such as weather, raw material supply and delivery may affect the periodic spot circulation. In addition, terminal orders have improved counter-seasonally, weaving and polyester loads have remained high, PTA has maintained a slight destocking state, and short-term futures prices have remained strong. In the medium to long term, new PTA production capacity will be put into operation from the fourth quarter to the end of the year, and market supply and demand will be greatly impacted by then.
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