Since 2022, PTA prices have mainly followed a cost-end logic, with prices rising and falling following upstream prices. Cost will still be the core influencing factor in the second half of the year. It is expected that PTA will still follow the fluctuations of crude oil and PX. The overall trend may follow the upstream trend of first high and then low. Pay attention to the impact of international geopolitics and upstream price trends.
1. Cost is still the dominant factor
The upstream source of PTA is relatively single, and can only come from crude oil. Therefore, the cost side is greatly affected by crude oil. Basically, the general trend is consistent with crude oil. PX, as its direct raw material, also has an important impact on the cost of PTA. Since 2022, PTA prices have mainly followed a cost-end logic. From January to June, under the influence of geopolitical factors, the global energy supply crisis continued to deepen. The prices of basic energy sources such as oil and gas rose sharply, raising the cost center of the industrial chain, and PTA prices rose sharply. Beginning in mid-June, with the correction of crude oil and PX from high levels and the weak macroeconomic impact, PTA prices began to correct sharply. Since the beginning of this year, the main contract price of PTA has been operating in the range of 4984-7728 yuan/ton, and the spot benchmark price in the East China market has been operating in the range of approximately 4982-7718 yuan/ton.
Figure 1: Crude oil-PX-PTA price chart
Data source: Wind
Since 2022, international oil prices have first strengthened and then weakened. WTI crude oil has reached a maximum of 130.5 US dollars/barrel from around US$75/barrel at the beginning of the year. It is mainly due to the resonance of fundamentals and geopolitical factors that have driven oil prices to continue to rise. After the global epidemic improved, demand fully recovered, and the crude oil market continued to destock, supporting oil prices to continue to rise and approach around US$90/barrel. The outbreak of the Russia-Ukraine war at the end of February stimulated oil prices to soar in seven trading days. However, 40 years of high inflation in the United States, which has attracted global attention, is the main reason for limiting the continued rise of oil prices. With the interest rate hike again in mid-June, the market’s concerns about the demand outlook have intensified. International oil prices have continued to fall, and the WTI crude oil main contract has continued to decline. It fell from a high of US$123.68/barrel, with the lowest price so far hitting US$85.73/barrel.
In the later period, it is expected that oil prices may fluctuate weakly, and the general trend of PX prices may be consistent with crude oil. After entering the fourth quarter, after strong demand, it may enter a weak and volatile trend, and the price center of gravity may shift further downwards. Overall, cost support may be expected to weaken in the medium to long term. Overall, upstream cost support for PTA may show a trend from strong to weak in the second half of the year.
2. There is no obvious support for supply and demand
In February 2022, Yisheng New Materials Line 2 will be put into operation with a capacity of 3.6 million tons, and the domestic annual PTA production capacity will be increased to 69.89 million tons. In the first half of the year, the overall supply of PTA was at a low level, with the average operating rate at about 74%. This was mainly affected by the continued strengthening of upstream costs and the significant compression of PTA processing fees. The cumulative output of PTA from January to July was approximately 31.5339 million tons. In June, with the correction of upstream prices, PTA processing fees gradually recovered and the operating rate also increased. However, the operating rate gradually declined again in July. Recently, with the increase in processing fees, the operating rate has shown an upward trend. As of August 22 On the same day, the domestic PTA device operating rate was 71.08%. Overall, PTA supply in the second half of the year may be higher than that in the first half, and it is expected that output may gradually increase in the later period.
Figure 2: Domestic PTA device operating rate (%)
Data source: Wind
In terms of downstream demand, the direct downstream of PTA is polyester, so the operation of the polyester industry will affect the demand for PTA. As of now, the domestic polyester production capacity base is approximately 68.045 million tons/year. Since 2022, due to the impact of the international situation and the epidemic, poor terminal demand has made the operating rate of polyester and terminal looms significantly lower than in previous years. As of August 22, the average operating rate of polyester in the first half of the year was about 77.18% (last year About 87% in the same period), the terminal loom load in Jiangsu and Zhejiang was about 48.05% (about 75% in the same period last year), and the cumulative polyester output from January to July was about 33.3603 million tons. It can be seen that terminal consumption performance was weak under the influence of the epidemic. The weaving industry showed the characteristics of a sluggish peak season in the first half of the year. During the off-season demand period from July to August, the downstream operating rate was even lower than the same period in previous years. This is partly due to the disruption of the epidemic that caused some foreign trade orders. On the other hand, the high inventory of the textile and apparel industry has encountered the sluggish domestic demand market, and new orders are limited under the pressure of factories destocking. As the epidemic gradually improves in the near future, the impact of the epidemic on demand may be gradually alleviated. The demand side is expected to gradually recover. Coupled with the arrival of the Golden Nine and Silver Ten, the downstream operating rate may increase slightly. However, due to the impact of the epidemic on demand, it is difficult to achieve this in a short period of time. Complete recovery, the speed and degree of recovery of downstream operating rates also require continued attention.
In terms of terminal demand, from January to July this year, the cumulative retail sales of clothing, shoes, hats, needles, and textiles were 723.9 billion yuan, -5.6% year-on-year, and have continued to decline in recent months; textile yarns, fabrics and products, clothing and clothing accessories The cumulative export value was 1.22899 billion yuan, 35.22% year-on-year, and the growth rate continued to decrease. It can be seen that terminal demand has weakened due to the impact of the epidemic, and poor demand has also led to the accumulation of polyester inventory. Since the beginning of this year, the inventory days of filament and staple fiber have shown an overall increasing trend. Data show that as of August 18, the inventory days of polyester filament FDY, DTY, and POY in Jiangsu and Zhejiang looms were approximately 36.5 days, 43.8 days, and 37.8 days respectively.�, the inventory days of polyester staple fiber are about 4.09 days, which are all at a stage high level, and the inventory pressure is high.
Figure 3: Downstream polyester and terminal loom load (%)
Data source: Wind
In terms of PTA import and export, since 2022, PTA import and export has still maintained a state of large export volume and small import volume, and the export market continues to perform well. Specifically, the cumulative import volume from January to June was approximately 17,700 tons, while the export volume increased compared with the same period last year, and the overall trend was gradually increasing. The cumulative export volume from January to June was approximately 2.0592 million tons. The major exporting countries For India, Turkey, Pakistan, Vietnam, Brazil and other countries. In recent years, the competitive advantages of domestic PTA companies have been continuously improved, backward production capacity in Asia has been withdrawn in large numbers, and supply gaps have appeared in overseas regions. Large domestic manufacturers have begun to expand the export market to alleviate domestic supply pressure. In the second half of the year, Hengli Huizhou plans to put 5 million tons of PTA production capacity into operation. The pressure of excess in the PTA market continues to increase. In view of the current domestic and international supply and demand environment, it is expected that PTA exports are expected to maintain a rapid growth trend in the second half of the year, with capacity transfer and export as the main direction.
Figure 4: Monthly import and export volume of PTA (10,000 tons)
Data source: Wind
Generally speaking, high costs and weak demand are the characteristics of the commodity market in the first half of this year, and PTA is no exception. In the first half of the year, oil and gas prices rose sharply, and the cost focus of the industrial chain increased significantly. The demand side was disturbed by the domestic epidemic and geopolitical and other unfavorable factors. The impact is weak. PTA processing fees have been compressed overall, and volatility has also increased significantly. The overall supply in the first half of the year is at a low level. As PTA processing fees stabilize in the second half of the year, PTA supply may also be higher than that in the first half of the year, but in terms of cost Against the backdrop of still running at a high level, it is expected that the supply increase will not be too large. In the first half of 2022, poor downstream demand will provide weak support for PTA. In the second half of the year, polyester consumption in the third quarter of the demand side will still be supported by the peak seasons of the Gold, Nine and Silver Tens. The current inventory level in the weaving link is low, and there is room for further replenishment. As With the release of terminal autumn and winter orders, polyester production and sales are expected to improve and be destocked, thereby supporting the upstream PTA. In the second half of the year, the demand side’s support for PTA may show a trend of strength first and then weakness, but the outlook for terminal consumption is not optimistic. Due to the reality of high inventory in the ester market, the downstream demand for PTA is expected to be difficult to exceed expectations.
3. Summary and suggestions
In the second half of the year, the unilateral logic of upstream crude oil may weaken. Concerns about global energy supply still exist. However, the demand side also faces the risk of declining economic growth. Market uncertainty will increase in the later period. Crude oil and PX may show overall performance this year. The trend of first high and then low indicates that the cost support for PTA may turn from strong to weak. In terms of supply and demand, the supply in the first half of the year was low. In the second half of the year, as the impact of the epidemic gradually weakened and processing fees gradually recovered, PTA supply may increase slightly compared with the first half of the year. Downstream demand was weak due to the disruption of the epidemic. In the third quarter, polyester consumption was still at a high level. Supported by the ten peak seasons, the demand side’s support for PTA in the second half of the year may show a trend of strength first and then weakness. However, the end consumption prospects are not optimistic. Coupled with the reality of high inventory in the polyester market, the downstream demand for PTA is expected to be difficult to exceed expectations.
Overall, the main driving force behind the strengthening of PTA prices in the first half of the year is upstream crude oil and PX. In the second half of the year, cost is still the core influencing factor. It is expected that PTA will still follow the fluctuations of crude oil and PX. The overall trend may be higher and then lower following the upstream. Trends, pay attention to the impact of international geopolitics and upstream price trends. In terms of strategy, it is recommended to focus on band operations. In the second half of the year, it is recommended to focus on long-term and short-term operating ideas in the second half of the year. In terms of arbitrage, it is recommended to focus on the opportunities of long PTA and short ethylene glycol in the third quarter, and in the fourth quarter, it is recommended to pay attention to the opportunities of long PTA and short PTA.
Risk warning: crude oil price trends, PX prices, supply and demand, etc.