Since mid-March, driven by the centralized maintenance of PX in Asia and the high start-up of downstream polyester production, PTA has experienced a wave of rising prices. The spot price in East China has risen from 5,400 yuan/ton to a maximum of 6,617 yuan/ton. The 2305 contract rose from a minimum of 5,478 yuan/ton to a maximum of 6,612 yuan/ton, and the 2309 contract rose from 5,294 yuan/ton to 6,044 yuan/ton. In late April, dragged down by lower crude oil and negative feedback from terminal demand, PTA prices turned downward. Recently, the PTA2309 contract has been oscillating between 5,150 yuan/ton and 5,450 yuan/ton. Where will the market outlook go?
Macro risks have not yet been completely eliminated
The lack of elasticity in crude oil supply is mainly reflected in the following aspects: First, OPEC maintains its determination to reduce production. In terms of policy, on October 5, 2022, OPEC+ decided to reduce the average daily total production target of OPEC and its 19 production-reduction allies by 2 million barrels from November to the end of this year. On April 2, OPEC will reduce production by an additional 1.6 million barrels per day on the basis of last year’s 2 million barrels per day, which shows that OPEC+ has maintained a strong determination in its production reduction policy. Second, Russia is fulfilling its commitment to reduce production. Russia’s crude oil production fell by 300,000 barrels per day in March to 9.7 million barrels per day. Russia’s April output is still unclear and is expected to be around 9.5 million barrels per day. Third, U.S. production growth is slow. In the week ending May 12, U.S. crude oil production was 12.2 million barrels/day, a decrease of 100,000 barrels/day from last week. EIA expects U.S. crude oil production to be 12.53 million barrels per day in 2023, compared with 12.54 million barrels per day previously. U.S. crude oil production is expected to increase by 640,000 barrels per day in 2023.
Overall, the recent sharp fluctuations in crude oil mainly come from the game between macro sentiment and fundamentals. From a fundamental perspective, the crude oil supply side has reduced production and lacks incremental elasticity. However, macro risks have not yet been completely eliminated, and we still need to pay attention to the U.S. debt ceiling negotiations and the fulfillment of OPEC+ production cuts. It is expected that crude oil will mainly operate in oscillation in the near future.
Polyester production rebounded slightly
During the May Day holiday, affected by falling costs, the absolute price of PX declined. Currently, North American gasoline inventories are stable, gasoline crack spreads are weakening, and octane levels have fallen counter-seasonally. The PX maintenance peak has passed, supply has begun to increase marginally, and market confidence is slightly lacking. Judging from recent business start-up and shutdown data, domestic PX output is expected to be close to 2.6 million tons in May, and industry output has once again returned to the previous high level. After June, with the return of maintenance equipment and the subsequent commissioning of the second phase of CNOOC Huizhou PX unit, it is expected that the domestic monthly PX output will exceed 2.8 million tons. Overall, PXN is expected to gradually enter a downward mode.
The price of polyester filament has fluctuated and fallen since April, and has now reached the lowest price in recent years. Recently, with the early production reduction and the restart of maintenance equipment, the polyester production capacity utilization rate has rebounded slightly. Data show that as of May 18, the average weekly operating rate of polyester was 86.63%, an increase of 1.73 percentage points from the previous period; the weaving operating rate of Jiangsu and Zhejiang was 60.46%, an increase of 2.52 percentage points from the previous Thursday. Downstream replenishment, short fiber and filament production and sales rebounded during the week, and most varieties continued to be destocked. Looking forward to the market outlook, as the maintenance equipment that was previously reduced in production continues to restart, and new equipment is expected to be put into production, the polyester load still has room for recovery, but terminal orders are insufficient, and the pace of polyester destocking may slow down. With the advent of the high temperature season in summer, May and June are in the off-season for textiles. The sales or shipments of most products in Wujiang, Changxing and other places have dropped significantly compared with the previous period. The business of water-jet weaving enterprises is maintained in the off-season. The operating rate of the downstream weaving industry is around 58%, which is at a low level in three years. The supply pressure of polyester filament will gradually increase. The stocking of raw materials is also mostly offered at upstream polyester filament factories with discounts and appropriate replenishment of positions. After May, multiple polyester units were restarted. Given the high supply pressure and poor weaving and terminal demand, it is expected that corporate inventories will gradually accumulate in the future.
In the medium term, in terms of PX, as the centralized maintenance is coming to an end, domestic supply will also recover, but textile clothing has entered the traditional off-season, and the demand side will not see a significant increase. The production and sales of polyester filament fell back after factories reduced discounts, indicating that terminal orders are not ideal and stocking will only be carried out when low-priced raw materials become available. Polyester production starts are slowly increasing, but the extent is limited. If inventories grow too fast, it will trigger a second round of production cuts. Therefore, the mid-term trend of PTA cannot be said to be optimistic, and it is recommended to intervene in the 5,400 yuan/ton area with short orders again.