Is it expected that PTA basis frequently strengthens? What problems are reflected behind it?

Recently, the performance of the PTA market has “exceeded expectations.” First, the monthly PTA maintenance losses hit a record high in August, and then in September, t…

Recently, the performance of the PTA market has “exceeded expectations.” First, the monthly PTA maintenance losses hit a record high in August, and then in September, the spot processing difference of PTA rebounded to about 1,000 yuan/ton. Even more unexpectedly, the mainstream PTA spot transaction price in September referenced the futures 2301 contract price at a premium of 1,000 yuan/ton, a 4-year high. Is PTA’s strong basis this year within market expectations? What problems does the industrial chain reflect behind the frequent strengthening of basis?

On August 18, the mainstream PTA spot transaction price began to refer to the futures 2301 contract price. On September 5, the mainstream PTA spot transaction price referenced the futures 2301 contract price at a premium of 1,000 yuan/ton, hitting a four-year high and 427 yuan/ton stronger than on August 18. In the same period of 2021, the PTA spot price discounted the futures 2201 contract by 63-68 yuan/ton. There is a huge difference between the high spot premium in early September 2022 and the spot discount in early September 2021.

In this regard, Zijin Tianfeng Futures analyst Liu Siqi explained that in September 2021, the PTA market had a negative basis, which was mainly related to the market environment at the time – the number of warehouse receipts was high, and polyester was affected by power restrictions and other factors The operating load dropped, and PTA was facing a certain amount of accumulated library pressure.

“The basis is the difference between spot and futures prices. The strength of the basis represents the market’s near-term and forward supply and demand expectations, reflecting the liquidity of the spot. When spot supply is tight, spot prices tend to be higher than futures , the basis is positive; when spot supply is abundant, the basis is often negative.” Pang Chunyan, an analyst at SDIC Essence Futures, told the Futures Daily reporter that for the PTA market, from the perspective of the long-term industry cycle, when production is concentrated and oversupply occurs During the cycle, inventory rises, spot market pressure is high, and the basis is often negative; during the cycle of slowdown in new production capacity and rebound in downstream demand, the basis is prone to be positive. “Judging from the seasonal performance of the industry, the second and third quarters are the peak consumption seasons. At the same time, maintenance of PTA equipment is concentrated and inventories continue to be removed. The basis will then strengthen. If the supply drops sharply and the inventory is low, the basis will appear. Just in time.”

During the interview, the reporter learned that the current strengthening of PTA basis is mainly due to tight domestic spot supply.

“On the one hand, due to the reduction in PX supply, aromatic hydrocarbons continue to be tense, domestic and foreign PTA devices are intensively overhauled, long-term losses and lack of raw materials, PTA production has been significantly reduced. On the other hand, due to interference from typhoons and other weather factors, PTA shipping schedules have been delayed , the spot delivery of some PTA factories has been postponed. These two factors have jointly promoted the recent strengthening of PTA basis.” said Chen Sheng, an analyst at Guomao Futures.

According to Liu Siqi, starting from the second quarter of this year, overseas gasoline supply has been insufficient, inventories have continued to be depleted, demand for aromatic hydrocarbon oil blending has increased significantly, and the supply of PTA raw material PX has been tight. However, the profits of domestic PTA factories are low. Coupled with the tight supply of PX and the shortage of raw materials in PTA factories, the number of equipment maintenance increased further from August to September.

Zhuochuang Information PTA analyst An Guang told reporters that in August, there were many PTA devices undergoing unplanned maintenance and production reductions, and PTA output was only 4.365 million tons, falling to the second-lowest level in the year. In August, PTA’s monthly maintenance loss was 1.995 million tons, a record high. PTA’s monthly maintenance loss was 155,000 tons higher than the previous peak of 1.84 million tons.

According to Zhuochuang Information statistics, from January to August, the total maintenance loss of PTA was 13.8 million tons, and the average monthly maintenance loss was 1.73 million tons. The total amount and monthly average increased by 71% compared with the same period last year, showing significant growth.

“In August, the main reason for more maintenance of PTA equipment was the reduction in PX supply. From July to August, the average monthly operating load of domestic PX was 64% and 69% respectively, and PX continued to destock. In August, PX equipment undergoing maintenance and production reduction still remained More, the domestic PX supply gap is about 770,000 tons.” Anguang said that from May to July, my country’s PX import volume averaged 720,000 tons; in August, my country’s PX import volume rebounded to about 770,000 tons, and PX supply and demand were balanced . According to the current market feedback information, PX import volume was not abundant in August. Coupled with the shortage of ships and delayed arrival of PX imports in recent months, the supply of PX remained tight.

It is worth mentioning that compared with last year, the high premium of PTA this year is much higher than market expectations, and the strengthening of the basis also reflects a contradiction in the current polyester industry chain. Previously, the market’s expected large-scale production of the device did not materialize as scheduled, and expectations of further overcapacity did not occur. The excess expectations were falsified, and the reality deviated greatly from the expectations at the beginning of the year.

In this regard, Liu Siqi explained to reporters that under the large cycle of PX and PTA production, the basis of PTA has strengthened, mainly due to continued low profits, slowdown in supply production, and increased demand for aromatics oil adjustment.

“Since 2019, domestic large-scale private refining and chemical plants have gradually been put into operation. PX and PTA have entered the production cycle, and profits have remained low. After 2-3 years of losses, the maintenance burden of domestic and foreign PX plants has increased, and the enthusiasm for putting new plants into production has declined. Domestic supply growth has slowed down.” Liu Siqi said that overseas refining capacity has declined due to the epidemic, gasoline inventories have continued to decline, refined oil profits have increased significantly, aromatics oil blending has become more economical, and some PX raw materials (reformed oil, toluene, xylene) It is used to blend gasoline, further tightening the supply of PX. However, domestic supply has shrunk, demand has picked up seasonally, PTA has been significantly destocked, and PTA basis has strengthened.

“Analyzing from the perspective of production capacity, PTA supply tends to be loose during the year, but the current production of new PX and PTA devices is delayed than expected. At the same time, the shortage of PX limits the operating rate of PTA. The high basis difference of PTA in September is somewhat different from expectations.” PangChunyan believes that there is currently a periodic supply shortage, a large part of which is due to the improvement in domestic and foreign refined oil markets and the increase in demand for aromatics.

In Pang Chunyan’s view, while the PTA basis spread has strengthened, the spot processing spread and futures monthly spread have both strengthened, which are all manifestations of tight spot prices. “The deviation between reality and expectations mainly lies in the PX link. After the Russia-Ukraine conflict, global logistics was restructured, Russian refining capacity was squeezed out, and the balance of the aromatics market in Asia was broken. In addition, travel demand rebounded after the overseas epidemic, resulting in demand for refined oil It’s getting better.” She said that chemical raw materials are flowing more into the “pool” of refined oil. Against the backdrop of demand from the “big pool” of refined oil, the “small pool” of chemicals is prone to large supply fluctuations.

“Since there are still many PX and PTA devices undergoing maintenance and production reduction in September, the market will continue to trade the logic of PTA spot destocking.” Anguang said that if calculated based on the 4.4 million tons of PTA production limited by the PX supply side, polyester production will rebound. to around 5.05 million tons, superimposed on non-polyester demand, it is estimated that PTA destocking will exceed 350,000 tons in September. In addition, the extended stocking cycle of some PTA spot products will strengthen the impact of destocking in September. The short-term market still supports the high premium structure of PTA spot prices.

However, it is worth noting that the PTA basis has now loosened somewhat after reaching a high on September 5. In this regard, Pang Chunyan explained that after the delivery of the PTA futures 2209 contract is completed in mid-to-late September, the supply of goods in the futures delivery warehouse will flow to the market, and the tight spot situation will be greatly alleviated by then. By then, the market focus will return to the recovery of PX supply and the progress of new production capacity. It is expected that the PTA basis spread, monthly spread and processing spread will all weaken, especially the far-month contract.

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Author: clsrich