PX and PTA returning to fundamentals

China PTA prices drifted lower in Mar, though more producers announced maintenance plans due to squeeze of profits and PTA inventory was expected to reduce in Mar-Apr. It reminds us of the price deviation from fundamentals in late fourth quarter of 2020.

In the fourth quarter of 2020, US dollar weakened persistently while stock and commodity markets moved upward, due to breakthroughs in COVID-19 vaccines, Biden’s winning US election and expectations of easing policy as well as economic recovery.

In Mar 2021, stock and commodity markets pulled back. Though Fed announced to keep easing policy, market participants were concerned about any change in the policy with the strengthening of inflation expectation, reflected by rise in US Treasury bond yield. Commodity prices retreated rapidly, as a result of capital outflows and revaluation caused by new interest rates.

For that reason, commodity market movements since Q4 2020 has been telling more about the macro policy expectation based on capital change, than industry fundamentals. (However, the movements of each products are still related to its fundamentals.) Currently, market expectation and Fed’s commitment in easing policy is diverged, and it would take time to verify how the market will move, but commodity market is now correcting.

PX and PTA are returning to fundamentals.
In Mar, PTA-PX spread narrowed drastically, while acetic acid price hiked, as a result, PTA producers suffered losses and more plants announced maintenance plans and reduction of contract supply. However, the response in PTA price was not strong with futures contracts remaining weak.

In terms of spot-futures spread, PTA spots were priced at May futures contract minus 5yuan/mt, compared to minus 150yuan/mt earlier, reflecting tight spot supply as producers cut production with PTA-PX spread squeezed below 300yuan/mt.

However, PTA producers were still under losses though PTA-PX spread recovered somewhat, as PTA prices were weighed by large amount of registered warehouse receipts. Since March, more than 330,000 tons of PTA spot stocks have been converted from warehouse receipts. However, there are still more than 1.64 million tons of stocks in registered warehouse, more than 1.2 million tons in the same period of last year.

China PTA inventory is estimated to reduce by 700-800kt in Mar-May, based on the maintenance plans. If warehouse receipts continue reducing, stocks in the registered warehouse could decrease to within 1 million tons. Warehouse receipts are converted to spot stocks only when polyester sales ratio is healthy, and polyester plants are running at high operating rates with good incentive to purchase PTA, while PTA spot supply is tight.

As for PX, demand would shrink with heavy PTA turnarounds. Meanwhile, PX plants would entered turnaround season in the second quarter as well, and there is uncertainty on PX supply front due to unplanned disruptions in Feb-Mar.



In Jan-Feb, China PX inventory shed 200kt. PX inventory to consumption ratio decreased, as PTA production increased with Xinfengming, Billion and Shenghong starting new PTA plants with combined capacity of 7.5 million mt/yr since the fourth quarter of 2020. In Mar-Apr, China PX inventory is expected to increase by 250kt. Short term stress on PX market was not obvious, but in the longer run, the market is focused on Zhejiang Petrochemical’s second phase plant, which is poised in May-Jun.

In a conclusion, PTA-PX spread could be weighed by excessive supply of PTA, and the price could track the movements of feedstock, especially upstream crude oil. As PTA spot supply is tight, the spot-futures spread would stay firm, however, if polyester sales ratio remains poor and the operating rate is cut due to higher inventory, PTA spot-futures spread could get affected negatively. PX is currently in weak balance and PX-naphtha spread could hover in the range of $230-250/mt.