PTA prices near 4-year high under soaring PX

The most active September PTA futures contract closed at 7,366yuan/mt on June 7, up 302yuan/mt from the settlement price of the previous trading day. The spot price of PTA rose to 7,470yuan/mt in China domestic market, the highest level since October 2018. This sharp increases is still driven by the cost. PX prices soared to $1,485/mt CFR China/Taiwan, a new high of since 2015.  

Crude oil market stayed high with the start of the summer driving season approaching and China is easing COVID lockdowns. The European Union has begun work on the seventh package of sanctions against Russia. Although Opec and allied producing countries including Russia agreed to accelerate oil production in July and August, it did not appear to ease concerns about tight supply.

The driving force to PX market is the robust refined oil products market. The rise in refined oil products continued pushing up prices of blending components. The price spread of toluene and MX in the US and Europe to Asian toluene and MX kept widening, leading to sharp increase in Asian toluene and MX prices. Under this circumstance, PX producers intend to cut PX production and instead sell MX, or sold PX from Asia to US. Although PX plant operating rate gradually recovered as PX-naphtha spread widened in tandem to new high since Apr 2019, PX supply may still reduce in Asian market.

PTA plant operating rate may start to recover as some units gradually resume production after maintenance. PTA supply is expected to increase. However, PTA margin is again compressed to negative level again under sharp rise of PX prices.   

From the perspective of the polyester industry chain, although the demand is expected to increase after the epidemic lockdown eased, the recovery is limited. Under the high cost and weak demand, the dilemma of high price and low profit is difficult to solve, or it will continue to suppress PTA and polyester plant operating rate.

*POY cash flow =POY price-0.855*PTA+0.335*MEG+1250yuan/mt

PSF spread= PSF 1.4D price - 0.855*PTA-0.335*MEG-80yuan/mt (freight)  

PET bottle chip spread (excluding IPA cost)=PET bottle chip price-0.855*PTA+0.335*MEG.