In the past month, PTA has started a downward trend, with a decline of more than 20%. On the one hand, the cost side of crude oil and PX fell, and PTA cost support was no longer available. On the other hand, terminal demand continues to weaken, and PTA’s own fundamentals weaken under the negative feedback of demand. From the current point of view, the downward trend of PTA is not over yet.
Cost shift downwards
Although from the perspective of supply and demand, crude oil is still tight, and supply is even expected to shrink further. On the one hand, although OPEC announced an increase in production, there is insufficient idle production capacity, and there is no substantial progress in the Iranian nuclear negotiations. On the other hand, crude oil production in countries such as Libya and Norway declined. At present, demand is still in the seasonal peak season, and crude oil inventories are not high. However, under the high valuation of crude oil, the favorable fundamental support appears to be relatively fragile, and market trading macro expectations are mainly deteriorating. Due to the recent deterioration in various economic data and the Federal Reserve’s interest rate hike cycle, the market’s expectations for an economic recession have continued to rise, and the trading logic has shifted from inflation to recession. Oil prices have peaked, and the market outlook may show a resistive decline.
In terms of PX, with the peak of the US gasoline crack price difference, the oil adjustment logic that supported the strengthening of PX prices in the early stage no longer exists, and the PX trading logic returns to Asian supply and demand. The supply of PX in Asia has increased a lot recently. As of July 7, the operating rate of Asian PX was 75.1%, and the domestic PX operating rate was 80.5%. It has rebounded sharply from the low point. Domestic PX is expected to accumulate in July. The profit in the early stage of PX was too high. Although the price difference between PX and naphtha has fallen back to around US$370/ton recently, it is still overvalued overall and there is still room for compression.
The picture shows the price difference between PX and naphtha (unit: US dollars/ton)
Overall, the downward shift in the center of gravity of crude oil and the compression of profits in the PX link will put downward cost pressure on PTA prices.
Supply rises, demand falls
PTA supply has rebounded from low levels, demand has declined, the margin of supply and demand has weakened, and inventory is expected to accumulate. On the supply side, the Hengli Petrochemical Phase 5 has recently been overhauled, the Yisheng Ningbo Phase 4 has restarted, new material loads have returned to normal operation, Energy Investment and Luoyang Petrochemical are restarting, the PTA operating rate is at 78.6%, and supply has rebounded slightly. Since the current PTA spot processing fee is more than 500 yuan/ton, there is a strong willingness to restart the device and the supply continues to rebound. In addition, Dongying Weilian Chemical’s 2.5 million tons PTA plant is scheduled to be put into operation in August, which will also cause supply pressure in the long term. On the demand side, we are currently in the off-season. Polyester factories have high inventory pressure and low cash flow. Several major polyester factories have successively implemented production cuts, and the polyester load has dropped to 79.8%. Terminal weaving starts fell to 50%, demand is weak, and polyester starts still have room for downward adjustment. The supply and demand of PTA has shifted from a balance to an accumulated inventory, and the accumulated inventory in July is expected to exceed 200,000 tons. Due to the strong control of mainstream manufacturers over the supply of goods in circulation, the PTA basis is relatively strong. The basis of the main contract is around 400 yuan/ton, which supports the market price to a certain extent. However, due to the marginal weakening of PTA fundamentals, there is a high probability that spot weakness will be used to repair the basis in the market outlook.
Generally speaking, with the cost side moving downward and its own fundamentals weakening, it is expected that the decline of PTA has not yet ended.
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