PX grapples with oversupply despite expectaion of gasoline demand

Yisheng New Materials earlier planned to shut one 3.6 million mt/yr PTA line in end-Jan for month-long maintenance, but it has been delayed. Yisheng Dalian plans to shut its 3.75 million mt/yr PTA line in end-Feb for maintenance lasting 1 month, and Yisheng Ningbo was going to shut one 2 million mt/yr line in early Mar for upgrading. Adding to that is 3 PTA plants with combined capacity of 8.25 million mt/yr in South China, which have maintenance plans in Mar.

If all the plants are to shut as scheduled, China PTA plant operating rate may decline to a low point of 71~72% with an average level at 80% in Mar, down obviously from the estimated level of 87~88% in Jan.

With PTA companies stepping up maintenance, the oversupply of PX exacerbates, in contrast to the good expectation.

PX is currently under strains from excessive supply and rising inventory. With good economics but turnaround season yet to come, PX plant operating rates in and outside China have been hovering high for more than one month. China PX inventory has been increasing persistently since the fourth quarter of 2023, rising by an estimated 350kt in that quarter. China PX imports are expected to increase sharply in Jan, as the discharging of a large amount of cargoes have been delayed from Dec to Jan, and therefore the inventory could further pile up. It is heard that PX inventory at some PX or PTA plants has risen to high, and the product at some tanks has reached the maximum.

As a result, discussions for PX spot, especially Mar goods, have softened with bigger discount to average price.

However, there's still some good expectation of PX market. Firstly, Asian and US gasoline to crude oil price spread has been widening further in mid-Jan, strengthening the confidence in gasoline blending demand, despite that US gasoline stocks remain high as EIA data show.

Secondly, US toluene and MX prices have been rising obviously, with spread to the prices in Asia widening rapidly. The arbitrage window has opened in mid or late Jan, and it is heard that the flows of MX and toluene cargoes from Asia to US have increased obviously. As gasoline consumption has not yet picked up in the US, while aromatics supply in Asia is ample, market players divert cargoes to US market in the anticipation of fast gasoline consumption growth in the US in later period.

In past two years, during gasoline demand peak in the US, the market saw large amount of toluene and MX cargoes exported from Asia to the US, which led to lower availability of feedstock to PX in Asia and drove up PX prices. PX is expected to still get supported by gasoline demand peak in summer, especially when it can not be proven wrong as the consumption peak has not come.

Thirdly, though PX-naphtha spread maintains high, PX-MX spread has squeezed to $75/mt in Jan, indicating losses for some plants. And therefore, some units based on MX may reduce operating rates.

Beginning from late Jan, several PX plants outside China underwent maintenance, and some more plants have turnaround plans starting from Mar or Apr.

Besides from those, China's ZPC and Zhongjin Petrochemical also have turnaround plans, which may start from Mar and bring impact on supply in the second quarter.

As a result, the expectation for forward month PX goods is good, with discussion on Apr goods at higher premium to average price. Feb/Mar paper goods are also in contango structure.

In a conclusion, gasoline blending demand is expected to continue supporting aromatics market during the consumption peak. However, there's some change in terms of PX fundamentals.

1. China PX inventory has been increasing since the fourth quarter of 2023, and buyers and sellers are more active in trading. However, overseas suppliers are under selling pressure with high inventory but contracts not concluded.

2. After the continuous losses in 2023, PTA plants have become more proactive to adjust production under poor economics and expectation of weak demand.

Under this circumstance, if gasoline blending demand does not live up to expectation in later period, PX supply glut would swell on, unless PX plants cut production or PTA plants postpone or cancel the maintenance. Though the good expectation exists, PX market is more and more affected by weak situation in the near term.