The production capacity expansion of the PTA industry was relatively obvious in the past 2019. In particular, the PTA project of Zhongtai Textile Group located in the northwestern province of Xinjiang has recently stepped up its production, which makes people feel the enthusiasm for expansion. Against this background, PTA may face greater accumulation pressure in the first quarter of 2020, and prices may fall under pressure.
Recently, as polyester plants have successively begun maintenance and some PTA plants have completed maintenance and resumed production, the PTA market has returned to the downward pressure trend before November 2019. In mid-December 2019, the spot price of PTA was 4,860 yuan/ton, the main contract price was 4,922 yuan/ton, the basis difference was -62 yuan/ton, and the processing difference basically fluctuated around 550 yuan/ton. But this downward trend may be just the beginning. Around the next Spring Festival holiday, the PTA market will face the dual pressures of falling costs and increased production capacity. The market is under obvious pressure, and the price may drop to 4,400 yuan/ton.
On December 19, 2019, the price of PX was US$821/ton, and the cracking spread fell to around US$250/ton. It is expected that PX prices will fall sharply in the first quarter of 2020. In 2019, domestic PX production capacity increased by 11.9 million tons (including the Hengyi Brunei project), mainly concentrated in the second half of the year, with a production capacity increase of 80%. However, since the fourth quarter of 2019, the demand for terminals and polyester has been strong, the overall load of the PTA device is high, and the pressure on PX production capacity is not obvious. However, in the first quarter of 2020, with the arrival of the traditional off-season of the Spring Festival in the textile downstream market, the pressure to rapidly increase PX production capacity will be highlighted. Its social inventory may exceed 3 million tons, and PTA processing costs may drop from the recent 4,360 yuan/ton to 4,000 yuan/ton. Around tons.
Similar to PX, PTA will also face supply pressure brought about by capacity expansion in the first quarter. According to statistics, from 2019 to 2020, a total of approximately 20 million tons of new production capacity will be released in the market. In the first quarter, the total domestic PTA production capacity will reach 52.58 million tons. If it is estimated based on 80% of the device load, the corresponding apparent output of PTA from January to February is 7 million tons. At present, the maintenance plan for polyester equipment has basically been released. From the end of December 2019 to February 2020, approximately 13.75 million tons of polyester production capacity devices will be suspended, accounting for approximately 23% of the total production capacity of 58.5 million tons. From January to February, the apparent demand for PTA from polyester is expected to be around 6.4 million tons. Based on this analysis, PTA will face greater accumulation pressure in the first quarter, and prices are expected to fall under pressure. Combined with the price estimate of PX, by then, the processing difference of PTA may drop to less than 400 yuan/ton.
In the past two years, the newly put into production PTA equipment has advanced technology and low cost. If combined with the marginal effect, the processing difference can even drop to around 250 yuan/ton. What’s more, some of the groups to which new production capacity belongs have already connected upstream or downstream, and companies can also dilute costs through upstream and downstream. These companies have great cost advantages and have strong strength and willingness to accelerate competition. Compared with the polyester production plan of approximately 4.75 million tons for the whole year of 2020, PTA has a total of 16.3 million tons of new production capacity on the schedule, which will allow the market to digest the increased production capacity or eliminate old production capacity over a longer period of time.
Of course, the market also needs to pay attention to the following risk points. First, although the Spring Festival holiday is approaching, the current inventory in the polyester market is low. Whether companies will postpone production cuts and shutdowns in order to stock up requires close attention. Second, there are still two aspects of PTA’s new production capacity in the first quarter that require further observation, including whether the new device can be put into production as scheduled, and whether the device load can quickly reach a high level after being put into production. The third is whether OPEC will continue to deepen crude oil production cuts, thereby raising crude oil prices and supporting the costs of PX and PTA.
Overall, in 2020, the main theme of the PTA market will be low processing differences and production capacity changes. After the Spring Festival, PX prices may fall, and PTA profits may further decline. The processing difference of around 600 yuan/ton may become the “ceiling” of the processing difference of PTA companies in the future. Facing a new round of magnificent production capacity expansion, perhaps using PTA futures and options to lock in profits in advance and hedge risks is a convenient “ferry” for enterprises and traders to overcome difficulties.
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