PX inventory reduction faster-than-expected with unplanned plant shutdowns

There has been expectation of decline in PX plant operating rate in the second quarter due to refinery and PX plant turnarounds. However, those unplanned PX plant shutdowns in recent days still came out of expectation.

Besides from the scheduled maintenance, unexpected issues recently at PX plants including PetroChina Guangdong, ZPC and Zhongjin Petrochemical with combined capacity of 6.2 mln mt/yr would also cause obvious PX production losses.

The unexpected loss is estimated to reach about 120kt (Zhongjin shut its PX plant ahead of schedule due to equipment failure, causing production loss in Apr but the production in Jun would increase accordingly). In addition, there was rumor that another PX plant in Northeast China could also cut production or shut, and according to the feedback from the plant, it currently maintains normal operation, but it also mentions plan to cut production due to decline of PX profits based on MX.

PX-MX price spread has been hovering below $80/mt since this Mar, and even hit low point of $50/mt, indicating poor economics. As a result, some plants in South Korea has lowered PX operating rate since Apr. In China, MX price is resilient, as supply reduces amid refinery maintenance and picking up of gasoline blending demand. PX-MX price spread based on yuan has also narrowed from 1100yuan/mt in mid-Mar to 750yuan/mt, hitting new low since Nov 2023. Therefore, some PX plant relying on merchant MX is likely to cut PX plant operating rate. But it has not been implemented and PX-MX spread rebounded to 880yuan/mt on Apr 16, so any change in the spread should be watched closely.

As for TDP economics, as benzene price has been strong persistently, TDP margin in USD or Chinese yuan has been relatively high, supportive to the operating rate of TDP and PX units. Most TDP units keep stable operations except for the cut of some plant.

The monthly average operating rate of PX plant in China in Apr could drop to the new low since Jun 2023, estimated at around 77%. Despite the slight rebound in May, it would still be much lower than that in the first quarter. China PX inventory is expected to finally begin reducing in the second quarter of 2024.

Based on current PX and PTA plant turnaround plans, China PX inventory is estimated to decrease by about 200kt in Apr, 100~150kt in May and 50kt in Jun, which would be supportive to PX price.

With inventory decreasing in faster-than-expected pace, there will be fewer physical goods for May futures contract delivery and the downward pressure on futures price would get alleviated.

Currently, May PX futures contract has advantage against spot PX in terms of the price. The settlement price of May future contract was lowered than spot price by 242yuan/mt and 432yuan/mt respectively, calculated based on RMB central parity rate and selling rate. Even if the freights is included, futures price is still lower than spot price in East China market.

Due to the lack of liquidity of PX spots, PTA may prefer to buy in the form of spots after the delivery of May contracts, if there's no urgent need. However, as for PX suppliers, if there's replenishing requirements, they could be relatively more active than PTA plants.

The recent unexpected plant shutdowns and production cuts are supportive to May PX futures price, sending May/Sep spread narrowing rapidly, from 282yuan/mt to 170yuan/mt in contango structure.

However, due to PX inventory backlogs of more than 800kt accumulated since the fourth quarter of 2023, a total reduction of 350-400kt in the second quarter of 2024 would not be enough. Most PTA plants in China still have relative large amount of feedstock at hand, and therefore, there's no urgent purchasing requirement. In addition, discussion in PX market is now centering on Jun and H1 Jul goods, and the plant turnarounds would complete and supply would recover by that time. Therefore, the rebound in PX price would be capped.