Rapid Appreciation Of RMB &Nbsp; PTA Form Effective Cost Support

Signs of global economic slowdown are growing, and investors are less confident in the market outlook.

Since the beginning of May, China and the United States have been showing weak economic data since the beginning of the year, and the economic growth rates of both countries have shown signs of slowing down to varying degrees.

The slowdown in the US economic recovery began to emerge in the May economic data and was further confirmed by June data.

In May and June, the PMI index continued to fall, the unemployment rate continued to be high, the employment population increased from positive to negative, housing starts and other real estate data also declined, and the new housing starts in June fell to the lowest level since October 2009.

In response to the weak economic data, the Fed publicly acknowledged the signs of a slowdown in the US economic recovery in the June 23rd Conference on interest rates, and then lowered the growth forecast of us GDP in 2010 to 3.0%-3.5% in mid July, and raised the 2010 unemployment rate slightly to 9.2% -9.5%, and said the weak employment market will inhibit economic growth.

Bernanke, chairman of the Federal Reserve, described the future economic situation of the United States with the words "exceptionally uncertain".

China's economic situation is also not optimistic as the signs of the US economic slowdown are growing.

Since May, a number of economic indicators, including industrial added value, fixed asset investment, PMI, electricity generation, credit volume and new loans, have come down to varying degrees. The impact of property market regulation policies on the real estate industry as a pillar industry has also been reflected in the sales growth and sales volume of 70 large and medium-sized cities in May.

The subsequent China's June economic data further settled the view that China's economic growth slowed down.

In June, the industrial added value and the growth rate of fixed asset investment in 1-6 months were 2.8 and 0.4 percentage points lower than those in May and 1-5, respectively. In June, PMI dropped 1.8 percentage points compared with May, and the growth of power generation also dropped significantly.

In June, the growth rate of money and credit index M1 and M2 decreased by 5.3% and 2.5% compared with last month.

The impact of the housing market policy continues to increase, and 70 large and medium-sized cities in the country are housing.

The slowdown in the pace of economic recovery in China and the United States will have an important impact on the global economic recovery.

For China's economic situation in the second half of the year, we believe that domestic economic growth will continue to callback in the second half of this year, with the impact of external economic environment and domestic economic slowdown and inflationary pressure coexisting, thus affecting the demand for various industrial products including PTA.

The double pressure of external demand and RMB appreciation affect textile exports and curb PTA demand.

From 1 to June this year, exports of textile and garment industry continued to pick up.

However, many unfavorable factors such as the decline of external demand and RMB appreciation will make it difficult for the export growth in the second half of this year to continue.

Among the two main trade partners in China, the United States is facing the situation of persistent high unemployment rate and the weakening effect of the economic stimulus policy, while the EU countries have to implement the austerity plan because of their deep debt trap, which greatly restricts the growth of EU consumption.

One of the effects of the slowdown in the above-mentioned countries is the demand reduction, which will affect China's export trade.

Judging from the recent export orders of domestic textile enterprises, the European market has seen a significant reduction in the number of customers. Although the US market is still placing orders, it is still dominated by short lists and urgent orders, and the bid is mostly depressed to a very low level, which makes exporters intolerable.

The RMB exchange rate policy recently announced by the Central Bank of China has promoted the rapid appreciation of the RMB in a short period of time.

The domestic textile and garment industry has a higher dependence on foreign trade and a lack of bargaining power, which is greatly influenced by the change of RMB exchange rate.

If the renminbi appreciates, it will have a negative impact on the export of textile and garment industry, further reduce the profit margins of export enterprises, weaken the competitiveness of the whole industry, and accelerate the pfer of foreign orders to low-cost countries such as India, Bangladesh and Vietnam.

Based on the above uncertainties, we believe that the rapid growth of China's exports in the second half of this year will be difficult to sustain.

If the export data fall, the demand for PTA will be restrained to a certain extent.

PTA's direct upstream p-xylene (PX) currently has a global capacity of over 30 million tons / year, and it is estimated that the capacity will exceed 40 million tons in 2011.

In 2009, the new capacity of PX in Asia will be released in 2010. There are also a large number of large-scale integrated petrochemical plants under construction and planning in China. These devices will be put into operation in the next few years, which will make the domestic PX capacity continue to expand passively.

Therefore, the total supply of PX will continue to increase in the second half of the year. In the next three to five years, the competition in the PX market will become more intense, and the price of PX will go up considerably.

At present, many mainstream manufacturers predict that at the end of the three quarter, PX will fall to 800 US dollars / ton.

If PX prices continue to fall in the future market, they can not form effective cost support for PTA.

The PTA plant has a high operating rate, an increase in imports, a double increase in total supply and inventory.

Driven by the high profit of PTA processing sector, the enthusiasm of domestic PTA industry started to rise in the first half of the year, and the factory operating rate rose from 70% at the beginning of the year to more than 90% at present.

The high opening rate resulted in the overall growth of domestic PTA output in the first half of the year, and the increase in output in May was more than 20%, reaching 1 million 269 thousand tons.

The total output of PTA has reached 5 million 376 thousand and 700 tons in 1-5 months.

Imports of PTA in the first half of this year showed a steady increase.

Although the import volume in May was significantly reduced by the increase in domestic output and the continuous decline in spot prices, imports increased by nearly 10 thousand tons in June to 467 thousand tons.

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In the first half of 2010, the total supply volume (output + import) of PTA grew month by month (excluding the Spring Festival in February).

In 1-5 months, the supply reached over 11 million tons.

In May, the total supply amounted to 1 million 726 thousand tons, compared with the domestic consumption of about 1 million 400 thousand tons per month, the supply side was about 200 thousand -30 tons.

At present, the growth rate of PTA output has not slowed down, and the import volume is increasing. It is estimated that the supply of domestic PTA will continue to increase in the second half of the year, and the supply pressure will continue to increase, thereby lowering the price of PTA and squeezing profit margins.

In the first half of the year, domestic PTA stocks remained at a high level, and by the end of June, social inventories were close to 1 million 200 thousand tonnes.

As the PTA warehouse receipt is about to be written off before the fifteenth trading day in September, more than 190 thousand tons of stock will probably flow to the spot market, which will add new pressure to the already abundant spot market.

To sum up, we anticipate that after the global economic slowdown, textile and garment export growth decline, PTA supply pressure continues to increase, inventory backlog is increasingly serious and other negative factors or slightly prevail, PTA overall trend is weak.

This round of rebound market space is limited, significantly higher than expected.