PTA prices to drop further without support from cost

PTA prices has been falling continuously since early December. With the price of WTI crude oil falling to around US$77/barrel, PTA January 2023 futures (TA301) price fell to a low of 4,928yuan/mt. The traders and polyester factories actively purchased PTA after the basis weakened. PTA transaction volume expanded. 

From the perspective of supply and demand, although the output reduction is obvious recently and some PTA units have been shut gradually according to the schedule. PTA plant operating rate dropped to around 66%. Although polyester polymerization rate also fell quickly from November to around 71% recently, PTA inventory has not piled up obviously. However, the basis weakened to a premium of 100-150yuan/mt, lower than the basis offered by PTA supplier earlier as the spot market liquidity eased moderately.

PTA margin has dropped to around 400yuan/mt. Considering that the start-up time of the new PTA unit has not yet been fully determined, the supply increment in December will be limited. With the relax of the epidemic prevention policy, the speculative demand appeared recently. The sales of polyester filament yarn improved. With the depletion of inventory and the improvement of profitability, the pace of output reduction may slow down in the short term. However, in the medium term, a buffer period is still needed for the recovery of substantial demand, the polyester polymerization rate may still decline around the Spring Festival.

From the perspective of cost, the recent financial market tends to trade the slowdown in interest rate hikes, and the U.S. dollar index is in a downtrend, market risk appetite has improved, and the overall market sentiment is relatively positive. However, the real problem of economic recession has not been resolved and cannot fundamentally boost demand expectations. Saudi Arabia lowered the oil prices sold to Asia in January, and the suppression of short-term oil prices is still obvious.

PX inventory is accumulating after the new plants started. Currently, the operating rate of Shenghong’s 2 million tons of PX plant has increased to 60-70%. PX-naphtha spread has been compressed to around $230/mt, and may further decline later.

PTA margin has dropped to around 400yuan/mt, and the market fundamentals may be better than expectation. The downward pressure is mainly from raw materials cost. In the mid-term, if there is no support from crude oil prices, the price of PTA will still drop.