PX under strains from weaker PTA profit

Several PX plants either cut operating rate or shut down recently, hence the market got bolstered though some of them have restarted.

Recent PX plant operations

PX margins clawed back some losses recently, as a result of production disruption. In addition, the reduction could affect the contract supplies to downstream PTA plant. Hence, the market got propped up and bids for PX were firm.

The improvement in PX margin was also due to expectation of reducing inventory in China in Jan-Feb. It is estimated that PX inventory could drop by 250kt in Jan-Feb, therefore, it can be seen from the trades of Feb materials concluded earlier that Feb PX price was firmer.

In terms of supply and demand in Mar, the fundamentals could change. For PTA, it was under immerse strains from increasing inventory, as Fujian Billion had started its new plant, old plant maintenance was limited, while downstream polyester operating rate fell obviously toward the Lunar New Year holiday. As a result, PTA-PX spread has narrowed heavily to lower than 400yuan/mt.

With the margin squeezed, more PTA plants are going to perform maintenance in Mar.

PTA production could reduce by about 700kt in Mar-Apr, if the plants carry out the maintenance as scheduled, equivalent to a loss of 460kt demand for PX.

On supply front, Sinopec Shanghai and GS Qingdao Lidong have maintenance plans for their PX plants in Mar-Apr, while maintenance of other plants are expected to start from May. PX production loss caused by scheduled maintenance is expected to amount to 160kt in Mar-Apr, which could lead to rebound in PX inventory.

However, the implementation of PTA plant maintenance will still be dependent on the margins. When PTA margins drop below 400yuan/mt, more producers would mull over production cuts. As trading in PX market is now centering on Mar and Apr materials and inventory could increase with demand weakening, it would be difficult for PX market to keep moving up in spite of recent supply disruptions.