PX price corrects despite plant turnaround expectation

PX price hiked to break through $900/mt CFR China in the first week after Chinese New Year holiday, but then fell back in the second week ending Feb 14. Then, how will PX price drop amid the expectation of upcoming plant turnaround season?

Trading in PX market centered on Apr spots after the holiday, and the in the anticipation of turnarounds in Apr, PX price was driven up amid bullish sentiment. In addition, several teapot refineries in Shandong cut operating rates after the holiday, and speculations in the market picked up amid concerns about aromatics supply. Afterwards, in the last week, ZPC's PX plant maintenance schedule came under spotlight, further providing support to PX.

Later last week, however, the bullish sentiment ebbed, and PX futures price declined. May and Sep PX papers flipped from backwardation to contango structure on Feb 13.

Recently, the news that some refineries may postpone the maintenance draws much attention. And therefore, the forecast of supply reduction should be revised. The postponement of some PX maintenance plan was in line with expectation (because some previous maintenance plans are flexible but not essential for the plants), yet it still impacts the market to some extent.

In terms of fundamentals, crude oil declined sharply. Concerns of a rebound in inflation had weakened expectations of Fed's interest rate cut, due to poor US CPI data. The geopolitical conflict showed signs of continuing deescalating. US crude oil stocks increased sharply, but weak demand dragged down oil prices. As a result, PX tracked the downward movement of crude oil.

PX supply is expected to reduce amid plant turnarounds, while demand would decline as well with several PTA plants poised to undergo maintenance.

The turnaround season begins in the second quarter, and several PX plants would undergo maintenance, with combined capacity of 5.29 million mt/yr to 6.55 million mt/yr (depending on whether Sinopec Yangtze and HRCC would undergo maintenance). Outside China, PX plants with combined capacity of 3.3 mln mt/yr are anticipated to conduct maintenance before May, meanwhile, plants with combined capacity of 1.72 mln mt/yr could restart.

The capacity with scheduled maintenance is large, but it pretty much matches what the market has expected. And there has been no unplanned maintenance yet.

On demand side, PTA plant maintenance is also intensive in Mar-Apr. The overall plant operating rate is expected to drift lower in Mar, and rebound slightly in Apr but would still be lower than the level in Jan and Feb.

Intensive PTA plant turnaround could affect how much the inventory of PX would reduce. In addition, the maintenance has also impacted PX spot market. Last week, some PTA producer was heard selling PX, and some unplanned PTA maintenance could cause the increase in PX availability.

Looking forward, PX inventory is estimated to increase in Feb, but decrease from Mar till May and it would reduce the most in Apr, and PTA inventory is expected to begin decrease in Mar with a reduction of more than 300,000 tons a month.

In a conclusion, PX could get supported in the near term but lacks further upward momentum. There's uncertainty in terms of downstream demand recovery. Downstream weaving operating rate is anticipated to rebound with return of workers, but the buying and stocking of polyester needs further observation.