Demand is weaker but supply reductions are more significant
In the generally weak state of chemical products this year, PTA with high basis difference and high profit can be regarded as “unique”. The “story” of the PTA market also changes its theme every season. Entering the fourth quarter, is there any new topic for PTA?
For PTA, the main contradiction in the market this year lies on the supply side. Whether it is the demand for overseas oil adjustment in the first half of the year or the frequent unexpected maintenance incidents, the direct consequence is the shortage of PTA raw materials.
There is still great uncertainty on the supply side
This year’s PTA “story” also changes its theme from season to season. The first quarter is about the cost support brought by crude oil; the second quarter is about the re-understanding of the pricing of aromatic hydrocarbons such as PX; in the third quarter, the market focus is on the lack of raw materials and low inventory. Spot liquidity issues arise. As we enter the fourth quarter, are there any new topics in the PTA market?
The basis of near-end PTA has weakened significantly. The spot processing fee once dropped to 100 yuan/ton, and futures also performed weakly. So can we judge that the market for PTA has changed?
Recently, TA’s operating rate has rebounded, and inventory has turned from depleted to accumulated. There are two main reasons: First, the reality is weak. PX imports from South Korea increased significantly in September, and the tight supply of raw materials eased, allowing major TA manufacturers to restart and increase their burdens. Domestic supply Second, there is great pressure to put into production. The market mainstream expects that new PX devices will be put into production after October. The shortage of raw materials will gradually be resolved, and TA still has production capacity. The overall supply and demand pattern is not optimistic. Can PTA’s inventory continue to be exhausted in the fourth quarter? We believe that perhaps before December, there will still be strong uncertainty on the supply side of PTA. Although demand is weak, the supply reduction is more significant.
Demand-side peak season expectations have not yet been fulfilled
In terms of demand, we believe that the polyester production start-up in the fourth quarter will fluctuate within a narrow range of 81%-85%. The root cause is the downturn in the overall textile and clothing market, and the seasonal peak season expectations of the “Golden Nine and Silver Ten” have not been fulfilled. The current winter off-season is still dominated by rigid demand, and exports are also unsustainable. Overseas finished textile inventories are high, and sporadic European demand for warmth has not been significantly reflected. The overall weak demand has become a market consensus. As for polyester, the near-end production start-up remains at around 83%, and the overall finished product inventory is high. Most of the small factories maintain a status of producing and selling immediately, while the inventories of finished products of large factories are relatively high. Taking into account the overall situation, although the benefits are not good, they still keep operating, but the cash flow pressure is high. In the third quarter, there were constant rumors of production cuts, but they have not been implemented. .
Why is the load of polyester not reduced due to weak demand and high inventory? This year’s high inventory has been maintained for more than half a year, and may become a normal phenomenon in the future. For large manufacturers, phased production reductions can alleviate certain pressures, but there will be no frequent shutdowns. As a large factory, there are many other things that need to be considered. issues such as social impact, overall factory operations, etc. And currently, although terminal orders are weak, they are relatively stable, and gray fabric inventory is at a medium to low level. Although the demand is much weaker than in previous years, judging from the characteristics of textile clothing, there will still be some flexibility. Overall, with weak demand, the upward momentum of polyester production may be limited, but there is also a certain degree of resilience in the downward direction. Therefore, the operating rate is expected to fluctuate within a narrow range in the fourth quarter.
How to fill the supply gap of PX
The supply-side problems changed in the fourth quarter, and the core problem lies in the strong uncertainty of incremental growth. From the inventory point of view, based on the current TA start-up, under the condition of high profits in the early stage, TA’s start-up space is limited. The reason for this situation is that on the one hand, the lack of PX causes TA to be unable to produce, and on the other hand, external procurement The profit of PX production of TA is not as good as the profit of internal oil adjustment, which makes companies unwilling to increase their liabilities. So the two questions that arise are how to make up for the supply gap of PX? How long will the internal oil adjustment market last?
Whether the supply of domestic PX is expected to increase can be judged from the domestic PX supply stock problem. Since the current domestic PX start-up has reached a certain limit, the increase lies in the improvement of toluene disproportionation and the start-up of some domestic short-process plants. It is understood that the internal oil adjustment gap may last until January next year, and the current operating rate of toluene disproportionation has not picked up, and toluene production is still maintained. It can be inferred that oil adjustment is still in progress, so this increase may be difficult to count on in the short term.
At present, the only thing that can alleviate the shortage of raw materials is new equipment. However, the market expectation for new equipment has been delayed from the end of September to the end of November. The time deviation has brought huge uncertainty. The actual increase in PX comes from imports from Northeast Asia. Although there was a significant rebound in September, will it continue in the fourth quarter? Based on the current maintenance plan, South Korea’s production has not increased significantly in the fourth quarter. Recently, after the production of major manufacturers increased, spot liquidity has eased, and TA processing fees have dropped sharply. However, at the same time, the supply of PX has not increased as expected, causing TA to start operating at a reduced load again. It can be seen that under low profits, both Yisheng and Tongkun have reduced their liabilities. Fuhua has increased its liabilities in the short term due to contract issues and has plans to reduce its liabilities in the future. In fact, the reduction in supply is significantly greater than the reduction in demand, so the core contradiction remains unresolved.
To sum up, the “story” on the supply side in the fourth quarter, whether it is the recurrence of crude oil, PX’s liquidity problems, or the constant changes in production expectations, may cause market fluctuations. �On the high end, supply is still tight, costs are supported, and with low inventories, there is much greater uncertainty. With low processing fees, the supply shrinks significantly and the valuation is low, so you can allocate more money appropriately.
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