PX driven up by production disruptions

PTA futures strengthened on Jun 13 morning with Sep futures contract advancing more than 100yuan/mt, on the back of news about PX plant operating rate cut in China.

There was discussion that ZPC reduced PX plant operating rate due to mechanical problem at hydrogenation equipment, and 40-50kt of its PX production could be affected, however, the news has not been officially confirmed.

PX supply was hit by Shenghong's unexpected operating rate cut by 15-20% of its 4 million mt/yr PX lines in the end of last week, and the news about ZPC further dealt a blow to PX supply. In addition, China polyester and PTA plant operating rates hover high, with strong demand for PX.

Though PX plant operating rate rises recently, PX inventory increase comes later. After inventory reduction by more than 600kt throughout 2022, the inventory further dropped by over 50kt during Jan-May 2023. Therefore, despite that PX plant operating rates are expected to further hike in China and Asia, and the inventory could increase, PX-naphtha spread stays strong, supported by high operating rate of polyester plants as well as good demand from PTA plants. Some PTA producers, in the lack of enough contract supply or with low feedstock inventory, continue buying PX from spot market.

With several PX plants to restart, the operating rate is expected to further tick up.

However, the operating rate rise could be cushioned by operating rate cuts by Shenghong and ZPC. China PX plant O/R is expected to rise to 78%, and Asian plant O/R to 74% with limited upward space.

As PX capacity concentration enhances in China and the capacity of a single unit becomes large, any production disruption could bring heavy impact on the market. ZPC's plant maintenance could deal a blow to the market though it has not announced the date. As a result, any squeeze in PXN spread is slow, and PTA is supported by high cost.