Market participants said that due to the dual impact of China’s large new production capacity coming into operation in the second half of this year and the uncertain demand outlook, the outlook for the Asian purified terephthalic acid (PTA) market is worrying.
Against the backdrop of a new wave of COVID-19 epidemics in Asia, especially India, and global logistics pressure caused by container shortages, the outlook for PTA demand in the second half of this year is even more uncertain. .
Despite the worrying prospects for the PTA market, some market participants still place their hopes on China’s possible rationalization of PTA device production capacity, and the large-scale vaccination of vaccines may control the COVID-19 epidemic. And create some price support factors in the second half of the year.
China’s large-scale capacity expansion drags down PTA production profit margins
China’s new PTA production capacity will be 7.2 million tons/year in 2020, and 4.9 million tons/year will be added in the first quarter of 2021. In the second half of this year, China is expected to have 6.6 million tons/year of new PTA production capacity put into production. According to people familiar with the matter, Yisheng Petrochemical will put into operation two new PTA production lines in the second half of this year. Each production line has a design capacity of 3.3 million tons/year. One of them is expected to be put into operation in July, and the other may be put into operation at the end of 2021.
Market participants said that this intensive capacity expansion caused China’s PTA profit margin to fall into negative territory at the end of 2020. It has been in a state of loss in the first half of this year and may be in the second half of this year. The company continued to suffer losses for half a year. Platts data shows that from January 1 to May 12 this year, the average price difference between China’s domestically produced PTA and the raw material paraxylene (PX) was 335 yuan/ton (about 52 US dollars/ton), lower than usual The break-even level is 500~700 yuan/ton. The average price difference between PTA and PX in US dollars during the same period was approximately US$93.66/ton. The price of PTA cargo in US dollars was supported to a certain extent by the tight supply in international markets outside China in early 2021. Although this spread is close to the typical break-even level for Asian PTA producers, the high cost of acetic acid feedstock has put pressure on many producers.
A Chinese PTA manufacturer said that PTA profit margins are generally on a downward trend and may be further compressed in the second half of this year. However, with changes in short-term demand and supply fundamentals, profit margins There may be occasional small rallies. A PTA trader said that despite the lack of fundamental price support, the absolute trend of PTA prices in the second half of the year depends on the trend of upstream paraxylene and crude oil prices.
The market focuses on Indian demand
Since China achieved PTA self-sufficiency at the end of 2020 and India became Asia’s largest PTA importer, PTA trade participants have been paying close attention to the demand in the Indian market where the COVID-19 epidemic has been raging.
In India, the timetable for the recovery of demand in the polyester industry chain is unclear, but market participants are hopeful that the situation of the new coronavirus epidemic in India will be resolved around mid-June. improve. But sources said that even if the number of infections drops significantly due to strict lockdown measures in Indian states, normalization of trade activities and demand recovery in India will only occur in the second half of the year. A new wave of COVID-19 infections in India has disrupted supply chains and manpower, and even if manufacturing is allowed to operate during the lockdown, it may be some time before the country gets back on track.
Sources said that once demand recovers in the second half of the year, India’s domestic PTA supply will become tight. This could lead to a surge in demand for imports within India, but a shortage of containers and expensive shipping costs could dampen this demand.
China’s production capacity and exports determine the performance of the Asian market
Two Asian PTA manufacturers said that in addition to the uncertainty of demand in India, the prospects of the Asian PTA market depend largely on the progress of China’s new PTA production capacity, potential rationalization of production capacity, and China’s plans to expand production in 2021. PTA export volume in half a year.
PTA trade participants hope that the overall operating rate of China’s PTA devices may be reduced, or less competitive devices may be shut down. After this, the PTA industry will be able to cope with massive capacity expansion and margin squeeze. However, market participants said that the rationalization of production capacity will be a long-term process, and it is unlikely that there will be a significant change in output in the second half of this year. They added that China’s PTA production capacity totaling about 4 million tons/year has been shut down due to various reasons since the end of 2020 and may remain shut down in the near future.
China Customs data shows that China’s PTA exports reached 196,592 tons and 338,675 tons respectively in February and March this year, setting record highs continuously and much higher than the monthly average of 70,565 tons in 2020. export level.
A PTA producer said that unless there are freight and tax advantages, it will be difficult to compete with competitively priced Chinese PTA goods. Elsewhere in Asia, South Korean PTA exporters will continue to target European and Turkish markets, taking advantage of South Korea’s free trade agreements with these countries, while Taiwanese producers are actively exploring various ways to diversify exports. </p
