PX market lacks bullish momentum, despite turnaround season expectation

The market has been expecting PX plant turnaround season, however, both PX price and its economics are not desirable, at least for those who anticipate the price to rise. The decline in crude oil price as well as weaker-than-expected downstream demand since this Feb have dealt a blow to PX price.

1. Crude oil slumps

Since Feb, Brent and WTI crude oil prices have been in a stalemate and then plunged. The Russia-Ukraine conflict seems to be closer to an end with the involvement of US. Oil prices, earlier driven up by the geopolitical tension, are correcting persistently. There's uncertainty due to US president Trump's tariff policy. Market sentiment is dampened and investors are concerned about the impact on crude oil supply and demand. In addition, US Consumer Confidence Index for February recorded the biggest monthly drop in three years, and the increasing inflation expectation also hit oil prices. With the collapse of upstream crude oil price, PX fell continuously.

2. PX-naphtha spread is squeezed by resilient naphtha price

Since this January, Asian naphtha price has been extending the resilience. Naphtha economics have recovered obviously, with naphtha to crude oil price spread widening to average $86/mt in Jan-Feb, up 55% from the same period of last year. Gasoline blending demand picks up in Europe with increasing local demand for naphtha, and thus the arbitrage cargoes to Asian market reduce. In addition, exports from Russia and Middle East to Asian market are interrupted, and thus naphtha supply is expected to shrink heavily in Mar and Apr in Asia.

Meanwhile, demand for naphtha is improving, as operating rates of crackers in Japan and South Korea rise, requirements for naphtha as feedstock from China pick up, and there would be new crackers in Asia to get on stream, driving up naphtha prices. However, PX-naphtha spread get squeezed to average only $213/mt in Feb.

3. Demand for PX does not live up to expectation

Despite weak crude oil, the expectation of PX plant turnarounds should have been supportive to PX price and economics. But the situation is that downstream PTA plants also undergo maintenance intensively, which would significantly affect how much the PX inventory would reduce.

In early Feb, several PTA plants in China announced turnaround plans, and in late Feb, Yisheng Hainan underwent maintenance and Hanbang extended its PTA plant maintenance. Downstream polyester is also weaker than expected. The recovery of polyester plant operating rate is slower than expected, due to the increase in fabric and DTY inventory as well as lack of orders. The overall demand is barely supportive to PX price.

Apart from the uncertainty in feedstock as well as slow recovery of demand, PX plant turnarounds also draws much attention.

Some refineries are said to either postpone the maintenance or undergo unplanned maintenance. It is only confirmed that CNOOC Huizhou has postponed its PX plant turnarounds to begin in end-Mar. Some trouble occurs at Shenghong's refinery, and it may conduct maintenance in Apr, but whether its PX unit would shut is unconfirmed.

In Mar, it is only confirmed Sinopec Jiujiang would undergo maintenance, and ZPC has maintenance plan, while CNOOC Huizhou has postponed its PX turnaround. China PX inventory is earlier expected to reduce but now it could increase slightly instead in Mar.

In Apr-May, plants with combined PX capacity of 5.29~8.55 million mt/yr (uncertain for Sinopec Yangtze and Sinopec HRCC) have maintenance plans. And outside China, 3 million mt/yr of capacity would undergo maintenance, up from the earlier expected. On demand side, Yisheng Hainan's 2 million mt/yr PTA plant would conduct unplanned maintenance. As a result, China PX inventory is estimated to decrease by about 200kt in Apr-May.

In a conclusion, PX supply and demand balance has been altered for Mar, due to plant issues. As for Apr and May, PTA maintenance is uncertain, while PX economics could get supported by plant turnarounds. Whether PX-naphtha spread would rebound would also be depending on recovery of demand.