China PX inventory to continue increasing

PX-naphtha spread has been shrinking, from the high point of $294/mt on Apr 28 to about $224/mt on May 31.

On demand front

China PTA margin has been low since 2021, especially after late Jan. PTA-PX*0.66 spread was lower than 400yuan/mt for much of the time. PTA producers were suffering losses, also because of soaring acetic acid prices. As a result, China domestic PTA plant operating rate decreased rapidly from 89% in early Feb to as low as 71% in mid-Apr.

Though fresh PTA capacity of 5 million mt/yr came on stream in China in the first quarter of 2021, domestic PTA output reached 17.37 million tons in the first four months of 2021, down 1% from Sep-Dec 2020.

On supply front

China PX plant operating rate was relatively low in the first quarter, due to planned maintenance or unplanned shutdown or production cuts. Then, with PX-naphtha spread widening, the average operating rate in Asia was raised to 78-80% in Mar, and China’s operating rate also increased gradually in Apr. China domestic PX output reached 6.85 million tons in the first quarters of 2021, down 5% from Sep-Dec 2020.

In terms of imports, China imported 1.2541 million tons of PX in Apr, down 16kt month-on-month. In the first fourth months, the imports averaged 1.168 million tons a month, up 5.4% from the monthly average in Sep-Dec 2020. Demand from PTA increased with new PTA plants on line since the last quarter of 2020, and also overseas plant ramped up production with PX-naphtha spread widening and benzene profits remaining healthy, driving up China PX imports.

As a result, the reduction in PX inventory in China since last Nov ended in Mar 2021, but then increased by about 300kt in Mar-Apr. The inventory is expected to further rise 150-200kt in May. In Jun-Jul, PTA plants with combined capacity of 8.7~12 million mt/yr are poised to shut for maintenance or cut operating rates though the time of some maintenance was undecided. It would be difficult for PX demand to improve. In terms of supply, the maintenance of two PX plants in China with combined capacity of 2.4 million mt/yr are further postponed, and plant operation outside China could be little changed in spite of some scheduled plant maintenance. Therefore, China PX inventory is likely to increase by 300kt in Jun.

Trading in PX market is also changing. Some PX suppliers cut production due to unplanned shutdown earlier, and entered spot market to buy to ensure contract supply to downstream clients, which supported spot PX price. However, with the increase in plant operating rate, buying from those supplies reduced obviously. Meanwhile, with the prevailing trading month rolled over to Jul and Aug, the trading sentiment could be affected by Zhejiang Petrochemical’s upcoming second phase PX plant.

In a conclusion, pressure on PX could grow stronger and PX-naphtha spread may shrink further. However, with the PX-MX spread under break even line, some PX producers based on feedstock MX could cut operating rate and thus PX supply could contract to support the market.