PX-naphtha spread after ZPC gets crude import quota

Rongsheng Petrochemical officially announced on Oct 25 that Zhejiang Petroleum & Chemical Phase II (joint venture of Rongsheng and Tongkun) has been authorized the quota to import 12 million tons of crude oil in 2021.

With the authorization of crude oil import quota, it was said that ZPC was going to raise the operating rates of the existing 3 crude distillation units (CDU). With the feedstock problem solved, it is for sure that the company would ramp up operating rate to ensure product supply and make profits.

As for PX, China domestic output is expected to increase in Nov, while PX-naphtha spread has been squeezed below $150/mt, new low in 2021.

In 2020, PX-naphtha spread found its support at around $150/mt. At that time, Asian PX plant (excluding Chinese mainland) operating rate dropped obviously to as low as 65% and then hovered at 70-75% for a long period.

Currently, PX plant operating rates both in and outside China are at lows. Due to poor economics, some plants based in South Korea also plan to cut PX operating rates by 10% starting from Nov. However, with ZPC expected to ramp up production, Asian PX operating rate may increase in Nov.

In addition, profits of refined oil products are good recently, incentive to refinery operations, but some refineries may increase the production of oil products and reduce chemicals, which is dependent on material balance. Meanwhile, profits of benzene remain attractive, which could offset some PX production loss.

In terms of demand, China PTA plant operating rate maintains around 83%, a relative high level, as PTA processing margin is moderate.

It is estimated that China PX inventory could still rise in Nov, however, with PX-naphtha spread being narrow, some unexpected plant operation issue may occur and PX supply and demand could get broadly balanced in Nov.

PX could hardly find support from the supply and demand, while feedstock naphtha price may stay strong in the short term, on high LPG price and good olefin margins.

It would be difficult for PX-naphtha spread to widen.