PTA margin down below 100yuan/mt despite the up-limit in futures

The conflict between Russia and Ukraine is intencified. Many countries released crude oil reserves, but failed to ease worries about crude oil supply shortage. Crude oil hit multi-year highs. Crude oil prices rose to $110 a barrel on Mar 2, up more than 6% in the day. PTA futures followed up, with TA2205 contract closed to 5,988yuan/mt, up 6% . However, PTA margin dropped to 93yuan/mt, the lowest level since June 2014.If acetic acid cost is taken into account, PTA margin have dropped to negative values.

In addition to the support of the rise in crude oil, the large gains in the price of naphtha is supported also by the high price of natural gas. Moreover, the sanctions imposed on Russia, a major supplier of naphtha also triggered the worries of the shortage of naphtha supply in Asia. Naphtha mopj trading closed up at $1009/mt CFR in the day, up $110/mt from previous day. PX price increased to $1206/mt, up by $81/mt from the day before.

Due to the continuous decline of margin, PTA producers announced more maintenance plans.PTA output contraction is obvious. In terms of demand, the polyester polymerization rate remains high at around 92% . PTA inventory is estimated to reduce, but the reduction is relatively slow.

Many PTA cargos are still piled up in the docks and the PTA stock at polyester plants are also at high level due to poor sales of polyester products. In February, the average production and sales ratio of polyester filament yarns is estimated to be around 65% (in terms of output, sampling survey), down 17 percentage points from January. Therefore, under the pressure of high inventory, the profit of the polyester industrial chain is difficult to improve.

In the short term, PTA prices may stay high with the support of cost, but the recovery of PTA margin will still depend on the production cut and actual inventory consumption.