PTA, which had fallen sharply in the previous stage, finally made continuous major breakthroughs driven by the recent rise in crude oil, and short-term futures prices continued to refresh. In the past half month, PTA ended its downward trend and rebounded from the low point by 9.5%.
This round of rise in PTA is inseparable from the support of frequent increases in raw material prices and processing costs. Although high downstream inventory is still the heaviest price-pressure anchor for PTA, the recent positive demand for downstream construction and the timely offset of installation shutdowns have strengthened the momentum. The long-standing PTA has shown greater upward momentum in the short term. But after rising nearly 10%, can PTA continue to move out of the deep V trend?
PTA bottoms out and rebounds
Polyester marginal rebound: cost support, joint production reduction
In terms of crude oil, the recent price oscillation has strengthened. On the one hand, it has been affected by the surge in natural gas prices, and on the other hand, EIA inventory has dropped sharply and exceeded expectations. The rise in natural gas is mainly affected by Russia’s reduction in natural gas supplies to the European Union. If the supply reduction continues into the winter, the European continent, Russia’s largest export market, may be extremely short of fuel. In addition, EIA weekly data showed that commercial crude oil inventories decreased by 4.523 million barrels, SPR inventories decreased by 5.604 million barrels, gasoline inventories decreased by 3.304 million barrels, and distillate inventories decreased by 12,000 barrels. Destocking supported oil prices. Overall, crude oil is still under strong and weak expectations, maintaining a wide range of oscillations, with the center of gravity shifting downwards.
In terms of PX, the supply in Asia is still tight in the short term, and PX prices have seen a significant upward recovery. As of July 7, the PX operating rate in Asia was at 72.7%, which has been falling for more than a month. It is currently at a low level during the same period in history. The output rate of PX devices in Japan and South Korea is still low. The import volume of PX in June was 713,000 tons, a further decrease from the previous month. Under the current low operating conditions, the import volume of PX will remain at a low level in the short term. Under the support of low supply, the short-term supply and demand pattern of PX is favorable, and profits have once again expanded at a low level. The current price difference between PX and naphtha is at US$358/ton, and the lower point has been restored to close to US$100/ton. However, in the long run, the domestic supply of PX is still loose. If Japanese and Korean devices increase the burden under high profits, the forward surplus pattern of PX will intensify. Therefore, PX is also strong in the near term and weak in the far range.
Taken together, cost-end crude oil and PX provide strong support for PTA prices in the short term, while PTA supply and demand show signs of marginal improvement. In terms of supply, in the short term, Line 3 of Yisheng Ningbo has been parked, Line 4 has been raised to full capacity, Yishenghua 225 has been reduced to 60% operation, Baihong has been reduced to 80%, and PTA’s latest load has been adjusted to 69.1%, indicating a contraction in supply. Hengli planned maintenance in August, and supply continued to run at a low level. However, PTA currently has very little production capacity that has not yet implemented its annual maintenance plan. In the long term, there will be supply pressure from increased operating rates and the launch of new production capacity. In terms of polyester, after the joint production cuts of polyester filament manufacturers and profit concessions from upstream links in July, the pattern of high inventory, low profits, and weak demand for polyester has shown a marginal improvement. Cash flow has improved, factory inventory has been reduced, and polyester production has increased slightly to 79%. The terminal order situation has improved, the weaving start-up has increased slightly to 55%, and the demand for PTA has increased month-on-month.
The rebound market mostly depends on upstream events
Downstream mentality turns to caution, dragging down improvement in fundamentals
On the one hand, crude oil is oscillating at high levels, and there is a need for rebound and repair under the low valuation of PTA. On the other hand, PTA’s fundamentals also show signs of marginal improvement. However, we believe that the short-term rebound of PTA cannot change the long-term weak trend, and PTA prices will still be under pressure in the future.
Judging from the mentality and expectations of the downstream, most downstream weaving companies have high expectations for business improvement in August and September. Especially boosted by the rebound of upstream raw material futures, downstream texturing and weaving have carried out a round of bargain hunting and stockpiling. Speculative demand has been released, including some back-end cloth merchants in weaving. Some of them do not have actual orders, but seeing the rebound in raw materials, some are also preparing to stock up in advance.
This round of rebound in the polyester market relies more on the macroeconomic atmosphere and overall commodity rebound, which in turn promotes the improvement of downstream mentality and the release of speculative replenishment needs. However, in fact, there is currently no driving force from the supply and demand side of polyester and its own downstream. The actual improvement in downstream orders is still very weak. It is more just a change in mentality and expectations for better future demand, which is not sustainable. If the commodity rebound stops in the later period, the downstream mentality will turn to cautious wait-and-see again, which will drag down the market again. As for the improvement of polyester fundamentals, the industry still needs to wait for further substantial improvement in real demand.
In the second half of this year, against the background of the easing of the epidemic and the continuous introduction of domestic policies to stimulate domestic demand, domestic demand is expected to rebound weakly. At the same time, under the pressure of declining overseas consumption growth and the return of orders to Southeast Asia, exports will weaken marginally in the second half of the year. Therefore, the overall demand recovery momentum in the second half of the year will be relatively slow. From a rhythm perspective, July-August is the traditional off-season for the textile and apparel industry. Under the double attack of high costs and weak demand, it is very important for terminals to grasp the rhythm of raw material trends and increase or decrease raw material stocking appropriately according to raw material market trends. The polyester industry generally chooses to self-discipline and reduce production again in June. Due to the slow recovery of overall demand and the high inventory in the industry, the start-up of downstream looms has been slow to pick up. In the off-season of the industry, the recovery of downstream weaving startups has stopped at around 50%, or…��We have to wait until September-October to increase to around 70%. High-frequency data shows that the transaction volume of China Textile City is still at a seasonal low, which also shows that the actual demand is indeed very poor. According to the performance of previous years, a significant improvement in transaction volume will also have to wait for the expected peak season of the Golden Nine and Silver Ten.
Terminal demand has not substantially improved
August is still difficult for PTA
From a macro perspective, from an inflation perspective, the general direction of the global economy is still following a recessionary logic. The Federal Reserve will continue to raise interest rates in July and September to curb inflation. The United States’ long-term recession expectations have strengthened, and the pressure to raise interest rates will gradually be passed on to non-U.S. countries. The logic of falling overseas demand will continue. Recently boosted by overheating U.S. employment data and the strength of crude oil after Biden’s failed trip to the Middle East, PTA rebounded rapidly. However, looking at the macro trend, the short-term rebound is mainly caused by the overheating of the US’s own employment and service industries and the phased decline of the US dollar. Given the current inflationary pressure in the United States, the U.S. dollar needs to maintain a strong trend to curb inflation. Therefore, commodities will continue to be under pressure as the dollar rebounds later.
In terms of supply and demand, the downstream polyester load rebounded slowly in the third quarter, and the market performance is still expected to be dominated by costs. In the short term, the warming of the macroeconomic atmosphere and the strengthening of oil prices will boost the polyester market. If the macroeconomic atmosphere is favorable and oil prices continue to rebound, the polyester industry will still be driven by a small rebound driven by costs in the short term. However, looking at the third quarter, PTA’s expected accumulation of inventory in August has not yet been driven by its own supply and demand, and it still needs to wait for substantial improvement in terminal demand, so the rebound is not sustainable.