PX remains weak, despite inventory reduction

PX continues the weakness since Oct, with PX-naphtha processing spread further squeezed and spot goods quoted at discount of more than $10/mt to formula pricing.

However, as a matter of fact, China PX inventory reduced in Oct after the increase in Sep, and is expected to keep decreasing in Nov. Then, why would the spot price stay weak persistently?

China PX imports increased heavily in Sep, and then maintained high compared to previous months or the same periods of last year, despite a slightly drop in Oct. Then, the import volume is expected to keep high though Asian PX plant operating rate has pulled back.

In terms of origins, PX imports from Middle East has increased obviously since Aug, and there're also inflows from Thailand, India and Indonesia. That part accounts for more than 200kt of increase in PX imports (including the increase from Kuwait since Jun). It indicates the return of PX, after the impact from gasoline blending since the latter half of 2022, and it brings pressure with more availability of PX in Asian market.

It is known that due to the low contract ratio for 2024, PX availability in spot market has increased this year. Some suppliers based in South Korea have concluded contracts with buyers in the latter half year, which alleviates the spot availability pressure. However, the inflows from Middle East continues to weigh on PX spot prices.

From the perspective of export data from South Korea, the export volume surged in Jul, but South Korea's PX exports to the US have reduced to zero in Sep and Oct. With diversion of PX to Asian market, the selling pressure has grown stronger.

Increasing availability means more profound selling pressure. Though some PTA plants in China have raised operating rates after Aug with incremental demand for PX, some PX plants also ramp up operating rates over the same period, and the additional demand is sated. Meanwhile, as the storage capacity for PTA is larger than that of PX, the buying from PTA plants can be more flexible.

In a conclusion, with an increase in PX volume in circulation and lack of storage capacity to cushion, PX sellers are in a passive position in the trading and PX price remains weak.

To overcome this situation, either the selling pressure should be alleviated through the way of contract goods selling or production cuts for example, or stocks at the hands of buyers reduce and buying intention becomes urgent.

The negotiation of 2025 term contracts should be watched closely. In addition, with squeezed margins, some plants begin adjusting production. However, it needs further observation due to the expectation of weakening of polyester and end-use sectors.