From May to early September, PTA prices fluctuated in the range of 3,700-3,900 yuan/ton, which was relatively small. Last week, PTA prices fell slightly following the decline of crude oil. Where will it go in the future?
The picture shows the start-up load comparison of the PTA industry chain
The pace of supply expansion continues
Since the second half of 2019, PTA’s new production capacity has reached 9.4 million tons, an increase of nearly 20%. The market has formed relatively consistent expectations for PTA’s production expansion cycle. Therefore, starting from August 2019, the main PTA futures contract entered a bear market, and the previous large Back structure also transferred to the Contango structure.
In the first half of the year, PTA factories maintained a relatively high operating rate. At present, except for some centralized maintenance, there has not yet been a situation where the load has to be reduced due to excessive supply. Therefore, the supply of PTA is very abundant.
After the Hengli Petrochemical Line 5 unit was put into operation in the middle of the year, the only new equipment that is relatively certain to be put into operation in the third and fourth quarters is the 2.2 million-ton Xinfengming Line 2. In addition, there are still 7.9 million tons of new equipment that may be put into production at the end of this year or early next year. Therefore, the PTA production expansion cycle has not yet ended, and there will still be a large amount of new production capacity to impact the market in the later period.
Downstream demand support is still there
This year, polyester demand has been severely affected by the COVID-19 epidemic. In the first half of the year, both the domestic retail market and exports of end-use textile and apparel suffered heavy losses. However, the end-use contradiction was not completely transferred to the PTA factory, but was partially digested in the polyester link. It can be seen from the start-up of different links in the PTA industry chain that the weaving factory is closest to the terminal and is under the greatest pressure. The start-up rate in the first half of the year was relatively low and dropped compared with previous years. However, the load of polyester factories remains at a high level, so for PTA factories, downstream demand support still exists.
In the first half of the year, the accumulation of PTA industry chain exceeded imagination. Not only that, weaving factories carried out bargain-hunting operations in March and April when prices in the industrial chain were extremely low, hoarding raw materials in large quantities, and their inventories even doubled. Entering the third quarter, the overseas epidemic situation has improved and economic life has begun to recover. At present, both domestic retail and export data in the terminal market have improved month-on-month, and retail sales have even returned to the same period last year, but there has been no so-called “retaliatory” rebound. Overall, PTA downstream demand is still relatively weak this year.
With the arrival of the “Golden Nine and Silver Ten”, the terminal market should improve in the autumn, but we should not be overly optimistic. The key to market recovery remains the epidemic. In addition to the recovery of economic life, the recovery of the textile and apparel market also requires an increase in per capita disposable income. From an export perspective, the epidemic in the United States deserves attention. In addition, the market’s pessimistic expectations for crude oil prices in the fourth quarter are negative for PTA prices from the cost side.
On the other hand, forward supply pressure is greater. Judging from the PTA supply and demand balance sheet, as of August 2020, PTA inventory levels are still high. Due to the reservoir role of PTA futures in the industry chain and its relative bargaining power, the current PTA processing price spread is still at a high level in the entire industry chain. The profits of the upstream PX and naphtha links have been significantly compressed. This is one of the reasons why PTA prices maintain range oscillations. In August, PTA factories began to undergo maintenance, the operating rate dropped, and supply and demand were relatively balanced. From September to October, downstream demand recovered. If the new production capacity is put into operation as scheduled, it will be difficult for PTA companies to maintain a processing price difference of 600-700 yuan/ton or even higher. </p
