Since mid-June, the negative macroeconomic situation has fermented, and crude oil prices have fallen sharply. In addition, stock speculation in mixed aromatic oils has come to an end. PX premiums have fallen, and PTA prices have followed the cost decline, approaching the low at the beginning of the year.
Macroeconomic negative pressure & demand lower than expected, crude oil shocks are weak
The Federal Reserve’s interest rate hikes suppressed oil prices. The U.S. non-seasonally adjusted CPI annual rate in May was 8.6%, and the year-on-year CPI growth rate in June was 9.1%, continuing to hit new highs and exceeding market expectations. The Federal Reserve announced the largest interest rate hike in the past 30 years to combat inflation. After raising interest rates by 75 basis points in June, it raised interest rates again by 75 basis points in July. Continuous sharp interest rate hikes have intensified market concerns about economic recession. The final value of the annualized quarterly rate of real GDP in the United States in the first quarter was -1.6%, which was expected to be -1.50%, and the previous value was -1.50%. U.S. GDP fell 0.9% year-on-year in the second quarter, marking the second consecutive quarter of decline. Consumer spending grew at the slowest pace in two years and business spending fell. The data heightened concerns that an economic recession may suppress energy demand.
Gasoline inventories increased unexpectedly, and peak season demand may be less than expected, adding to market pessimism. EIA gasoline inventories in the United States for the week to July 29 were 163,000 barrels, expected to be -1.614 million barrels, and the previous value was -3.304 million barrels. In the previous two weeks, U.S. EIA gasoline inventories increased significantly by 5.825 million barrels and 3.5 million barrels for two consecutive weeks. The EIA refinery equipment utilization rate in the United States for the week to July 29 was 91%, which was expected to be 92.8%, showing a downward trend.
In addition, the premium of geopolitical and sanctions factors has fallen, and oil prices lack an upward driver. There are weaknesses in the European and American sanctions against Russia. Since the European Union, the United Kingdom and the United States provide insurance for about 90% of the world’s Russian maritime oil transportation, the insurance ban may cause millions of barrels of Russian crude oil and petroleum products to be withdrawn from the market, which may further push up oil prices. The EU and UK have postponed plans to exclude Russia from the marine insurance market. The United States has allowed its banks to extend exemptions for processing Russian energy transactions to avoid spurring rising oil prices. Data shows that Russian crude oil production is gradually recovering. According to OPEC data, Russia’s crude oil production in June rose to 9.78 million barrels per day from 9.27 million barrels per day in May. Russia’s June output was 913,000 barrels per day below the production quota. According to statistics from the Russian Ministry of Energy, Russian oil production increased by 3.4% in the first half of this year.
However, global crude oil inventories remain low, and the slow increase in production in major oil-producing countries provides certain support for oil prices. OPEC agreed to increase production by 100,000 barrels per day in September, which is far lower than the increase OPEC has made in recent months. Long-term underinvestment has led to insufficient idle production capacity and limited OPEC’s ability to increase production. Agency data shows that OPEC’s idle production capacity will be reduced by nearly half to 1.7 million barrels per day next year, and to 400,000 barrels per day in 2024. Due to factors such as limited new investment, rising costs and energy policies. U.S. crude oil production is growing slowly, with current output of 12.1 million barrels per day, an increase of 300,000 barrels per day from December 2021, and 1 million barrels per day lower than the peak in March 2020.
Taken together, the Federal Reserve’s interest rate hikes and recession concerns continue to affect the crude oil market. Peak season demand in the third quarter may be lower than expected, and premiums have fallen due to geopolitical conflicts and sanctions against Russia. Low inventories in the crude oil market and slow production increases in major oil-producing countries provide support for oil prices. Oil prices are expected to fluctuate weakly, and we are concerned about the risk that the contradiction between natural gas supply and demand may intensify in the fourth quarter.
Oil adjustment speculation comes to an end, PX inventory tends to be exhausted in the fourth quarter
Table US PX spot-FOB Korean PX price difference
Data source: Wind, Capital Futures Research Institute
In May, the demand for gasoline and diesel in the United States was strong and prices were high, which led to an increase in demand for mixed aromatic oil blends. PX from Japan and South Korea was exported to the United States, causing a jump in PX prices. CFR China’s PX price rose to a maximum of US$1,512/ton on June 8, an increase of more than 25% within a month; the PXN price difference quickly expanded to a maximum of US$684/ton, a new high in the past three years; the Meiya PX arbitrage window continued to expand, with 6 The price reached a maximum of over 700 USD/ton in the middle and late months of the month. As the price of gasoline and diesel has fallen, the price difference between Meiya and Asia has returned to the normal range, and the oil adjustment speculation has come to an end.
The maintenance plan in the second half of the year is significantly reduced compared with the first half of the year, and the average load of PX will tend to rebound. It is estimated that starting in August, the domestic PX market will gradually transform from destocking to a balance between supply and demand. In terms of new equipment, Shandong Weilian Chemical’s second phase of 1 million tons, Guangdong Petrochemical’s 2.6 million tons, and Shenghong Petrochemical’s 4 million tons are scheduled to be put into production in October, and PX will enter the accumulation stage.
In August, PTA was destocked again and new equipment was put into production in the fourth quarter.
Chart PTA spot processing difference Chart PTA load
Data source: Wind, Capital Futures Research Institute Data source: Wind, Capital Futures Research Institute
Terminal orders were weak in January, the load of looms in Jiangsu and Zhejiang dropped, polyester product inventories hit a high point during the year, and polyester cash flow deteriorated. Leading polyester companies planned to reduce production by 30%, involving a production capacity of 4 million tons, changing the previous plan for some PTA devices in July. Overhaul supply and demand are expected to tighten. In July, PTA accumulated 230,000 tons in storage, and the PTA spot processing gap was once again reduced to less than 300 yuan/ton. In August, PTA maintenance equipment increased, with 2.2 million tons of Hengli Petrochemical and 1.5 million tons of Tongkun Petrochemical.�The equipment has been shut down for maintenance. Fuhaichuang, Yisheng Ningbo, Ineos and other equipment have not yet restarted. Yisheng New Materials and Yisheng Lian PTA equipment are operating with reduced load. It is estimated that about 100,000 tons of PTA will be destocked in August. From the perspective of inventory structure, as mainstream suppliers continue to ship goods, spot circulation is relatively abundant, and port PTA inventory has rebounded significantly.
In line with the start-up time of new units in the PX segment, the new PTA units of Shandong Weilian Chemical’s 2.5 million tons, Tongkun’s 2.5 million tons, and Hengli’s 2.5 million tons are planned to be put into operation in the fourth quarter. By then, the PTA market will suffer a major impact. Against the background of PTA capacity expansion, the industry will still maintain low processing fees. Considering that Hengli changed its contract pricing model to focus on spot sales at the beginning of the year, resulting in increased procurement demand in the spot market, the shipping intensity and rhythm of large suppliers will have a greater impact on the dynamic supply and demand of the PTA market in phases.
Poor terminal orders limit the space for polyester load improvement
Table Polyester Load Chart Polyester Filament Average Inventory
Data source: Wind, Capital Futures Research Institute Data source: Wind, Capital Futures Research Institute
The rebound in raw material prices in mid-to-late July drove downstream stocking. Polyester product inventories fell slightly. Polyester cash flow improved slightly. Some factories that had been shut down in the early stage were restarted one after another, and the low polyester load gradually increased. However, due to the decline in overseas consumption growth, the return of orders to Southeast Asia, and the successive outbreaks of domestic epidemics, the overall performance of terminal orders was poor, and the new order index of major weaving bases was lower than the same period in recent years. The window for placing orders for autumn and winter has passed. Some orders may be placed before Double Eleven and Double Dancing Day in the later period, but the overall order volume is expected to be difficult to see a significant increase. The start-up of terminal stretch weaving will be lower than the average level in several years. The high inventory of polyester products is difficult to remove, which limits the space for polyester load improvement.
Summarize
The cost driver of PTA has weakened, the short-term supply and demand margin has improved, and inventory destocking is expected in August. There is still some support for PTA prices. In the fourth quarter, PX and PTA will face the intensive commissioning of new devices, and the supply and demand structure of the industrial chain will face challenges again, putting pressure on PTA prices. It is necessary to pay attention to the disturbing factors of energy prices such as crude oil and natural gas in the fourth quarter.
About the author: Wei Lin is currently an energy and chemical researcher at First Futures, responsible for the research of crude oil and related chemicals, and is familiar with the energy and chemical industry chain and textile industry chain. Combining fundamental and technical analysis, focusing on practical research. As a member, he represented Capital Futures in the competition and won the honorary title of “Top Ten Futures Investment Research Teams in 2017”.
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