Weak gasoline may lead to PX production increase

COVID pandemic has resurged in China since Mar. Under the impact, several cities have implemented lockdown, restricting travelling and logistics. In addition, consumption is hit by high crude oil price, and thus transporting activities reduce heavily in China. Unlike the situation abroad, consumption of refined oil products in China runs out of steam, sales in some refineries even stagnate, and gasoline performs even weaker than diesel oil.

With gasoline price weakening while PX strengthening, the spread of PX-gasoline has narrowed significantly, even to positive territory based on CFR China PX price converted to yuan price.

The change in price spread could bring opportunities to producers to adjust production. As naphtha or MX in particular, could be used as blending component or to produce PX (blending with light naphtha, and reforming with heavy naphtha), refineries may reduce MX for blending and use it to produce PX instead.

PX-MX spread is hovering at relatively high side recently, reflecting that PX producers based on merchant feedstock MX can also make good profits.

Conversion of CFR China PX to yuan price: CFR China PX * 1.13 * 1.02 * USD/RMB exchange rate (VAT is 13% and import tariff is 2%).

Based on the profit calculation, PX production could theoretically increase due to weak sales of refined oil products in China, but in the actual manufacturing, the increment due to that reason is limited. Firstly, it would take time for refineries to adjust the production. Secondly, due to poor economics of refined oil products, the operating rate of some refineries, independent ones in particular hovers low, capping the increase of MX and toluene supply. Thirdly, there's restriction in terms of equipment of technology to use MX for PX production, hence the increment of PX is limited.

In a conclusion, it is workable theoretically, and some producers have already increased PX production while cutting refined oil products to a limited extend. Further increase needs to be paid attention to.