PX production cuts due to worsening of economics

PX-naphtha price spread has fluctuated lower since the beginning of Jan, narrowing to low of $164/mt as of Jan 8. PX-MX price spread also got squeezed sharply, to 6-month low of $48/mt on Jan 7. The worsening of economics lead to production cuts of some plants in China and abroad.

In China, Weilian Chemical has cut the operating rate of its PX lines with combined capacity of 2 mln mt/yr by 10 percentage points. PetroChina Guangdong plans to shut its 2.6 mln mt/yr PX plant on Jan 11 till Jan 18 for maintenance. Outside China, South Korea's GS and SK either cut operating rate or shut some unit. It is equivalent to a capacity loss of 160kt/yr in Jan and 110kt/yr in Feb 2025.

The expectation for more production cuts enhances due to the frequent operation fluctuations recently. Based on the current situation, in China, only Weilian Chemical adjusts operating rate, no plan of other plant is heard. Outside China, SK and GS have reduced operating rates. However, PX operating rate is still expected to hover on the high side on overall basis in Jan and Feb.

Then, will there be more reductions? To some extent, it is a game between term contracts and losses. After experiencing sluggish spot market in 2024, the negotiation of 2025 term contracts between China domestic and foreign PX and PTA factories are concluded smoothly. On the one hand, it will ensure stable operating rate of PX plants as well as steady PX supply. But on the other hand, the higher contract ratio also limits the operating rate adjustment space for PX plants.

At present, taking some Korean plants as examples, it is difficult to adjust the operating rate due to the need to fulfill contracts. There may even be a possibility that some plants may hike the operating rates. This is an important reason to explain why there is no such production cuts on large-scale now.

But it does not mean that the need to fulfill contracts will necessarily force factories to ignore losses and unswervingly maintain operations. If the company is in a long-term loss, it cannot be ruled out that some factories will eventually choose to reduce the operating rate and make up for the term contract through spot procurement. In particular, the current trading price for Feb spots at $13/mt discount to formula pricing can give factories to operate.

In a conclusion, the rebound in PX price caused by the production cuts is more a reaction to the fact that PX-naphtha spread has continued to remain within $200/mt since mid-October last year, and the overall reforming economics have also fallen into losses.

However, with China PX operating rate still high currently and the domestic self-sufficiency rate as high as around 80%, a small reduction in production of overseas units may not be enough to completely reverse the loss of PX. In the later period, we still need to pay attention to the changes in the operating rates of China domestic PX plants and whether downstream PTA factories will "resist" after the rebound of PX with economies compressed. In the long run, a significant reduction in PX supply may not appear until the turnaround season in March.