China’s Polyester Chain Under Strain

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China PX market was in a lull in April. In the lack of a clear direction, PX price tracked the movements of upstream naphtha and downstream PTA. However, the market was still under immense strain from long supply and demand fundamentals.

PX-naphtha spread narrows, but operating rate is stable
PX-naphtha spread has increased to 6-month high since this March. Though it has dropped in April, it was still higher than the lows recorded last Nov-Dec. As the spread was acceptable, China PX operating rate was kept stable at highs. The operating rate of PX plants in China averaged 80.5% to-date in April, rebounding to the new high since October 2019.

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Downstream PTA operating rate remains high with stale demand for PX
Spurred by good profits, China PTA plants were running at high operating rates. PTA-PX spread rebounded to 700 yuan/mt in average to-date in April, new high since November 2019. The average PTA operating rate has also increased to above 90%.

The recovery in profit and the high operating rates contributed to a regular PX purchase pace. The cases of PTA plants cancelling contracts for PX earlier seen have reduced in April.

China PX inventory surges to record high
Demand for PX evaporated outside China due to the spread of coronavirus pandemic. However, as China resumed work and production, an influx of PX was attracted to China’s market. Local PTA producers stocked up low-priced feedstock PX, which resulted in China PX imports reaching over 3.76 million tons in the first quarter.

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Recently, storage space is filling in the ports of China, therefore, vessels were lining up to unload cargoes. In addition, due to the measures to curb the pandemic, vessels should practice inspection and isolation. The large amount of cargoes added to the woes of PX supply and demand fundamentals.

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PX market under the strains from high inventory, could see squeezed profits if upstream feedstock crude oil and naphtha strengthened up. As PX-naphtha and PX-MX spread is near the lows, producers may reduce operating rates if the profit crunch continues.

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