PTA The Weak Pattern Will Not Change.

Although the price of PTA has picked up in the past two days, the contradiction between supply and demand is difficult to alleviate in the short term, while the international oil price trend is still uncertain. Therefore, the PTA price will also be dominated by oscillating and weak operation.

Under the weak fundamentals, PTA price trend is more vulnerable to international oil price fluctuations. Due to the hidden troubles of PTA itself, we should not be overly optimistic at the moment. In the later stage, PTA will be dominated by oscillatory running.

Processing costs fell sharply

Although OPEC+ finally reached a reduction agreement, the international oil price began to decline in April 9th, and the decline in the past two days has been significantly expanded as the scale of production cuts is less than market expectations and is difficult to offset the global demand for crude oil caused by the new crown pneumonia epidemic. This is aggravating the market's concern and also supporting the collapse of PTA's cost support.

The raw material for PTA is PX, PX is made from naphtha, naphtha is also used for crude oil or other raw materials to produce light oil for chemical raw materials. Naphtha and crude oil prices have a high correlation, it is estimated that since 2019, the two spot price correlation coefficient is as high as 0.9402. Because PX has expanded rapidly in recent years and the market competition has intensified, the PX price has dropped sharply in 2019. So far, the correlation coefficient between PX and crude oil spot price has been slightly lower since 2019, but it still has 0.6758. The crude oil naphtha to PX to PTA process led to a sharp decline in crude oil prices, and naphtha and PX prices also fell sharply. The recent low PTA processing cost has fallen again. It is estimated that in April 24th, domestic PTA processing cost (excluding labor cost and fixed cost) was 2474.87 yuan / ton, a sharp decrease of 1166.65 yuan / ton compared with March 6th. Due to the decline in processing costs, even if PTA spot prices also fell, the processing profit of enterprises is still considerable.

2020 is a year of high speed expansion of PTA production capacity. Many sets of PTA devices will soon be put into operation, and the market competition intensifies, so that PTA production and processing profit is expected to be compressed. However, the reality shows a dramatic aspect. Since March 2020, the sharp decline in international oil prices has led to a sharp decline in PTA raw material prices, while PTA processing profits have picked up. It is estimated that in April 24th, domestic PTA processing profit (excluding labor cost and fixed cost) was 655.13 yuan / ton, although the processing profit of 700-800 yuan / ton in the previous few days was narrowed, but it is still relatively high in the near future. As a result, the PTA enterprise's production willingness has increased significantly, and the PTA plant has started construction at a high level.

Demand remains weak.

As the recent PTA processing profit is relatively considerable, so although the PTA price fell continuously, and many times hit a new low, but the PTA installation is still at a high level, PTA supply is loose. In April 24th, the daily operating rate of domestic PTA installations was 92.77%, which was 17.26 percentage points higher than that of the same period in 2019. In April 24th, the output of domestic PTA weeks was 928 thousand and 200 tons, which decreased by 16 thousand and 300 tons compared with the previous week, a significant increase of 138 thousand and 800 tons compared with the same period in 2019 (April 17th week, the domestic PTA week production has a record high).

However, in the past 2 years, the output has reached a new high level. Meanwhile, there is a hidden danger in PTA demand. During the Qingming holidays, PTA downstream polyester production and sales volume, previously high inventory pressure to release, originally planned to control the production of polyester enterprises also with the release of inventory pressure and resume normal production, polyester start-up showed a rising trend every day, in the short term, PTA demand performance is still acceptable. But it should be noted that the release of downstream polyester stock pressure is not due to the demand side warming, but simple inventory transfer.

As the overseas epidemic is still grim, the export channel of terminal weaving industry has been blocked, and foreign trade orders have fallen sharply, forcing terminal weaving enterprises to control production. Recently, the terminal loom operation rate has dropped to below 50%. Weaving began to decline, making its demand for polyester weakened, polyester stocks fear will quickly accumulate, polyester enterprises at the end of the stock pressure still exist in the production or down operation may be, then PTA demand will also likely to weaken. In April 23rd, the polyester comprehensive daily operating rate was 83.89%, which was 7.17 percentage points lower than that in the same period in 2019. The daily operating rate of Jiangsu and Zhejiang looms was 48%, which was 34 percentage points lower than that in the same period in 2019.

High inventories continue to suppress prices

Since December 2019, the domestic PTA social inventory has entered the storehouse stage. Under the influence of the epidemic, the downstream polyester enterprises resumed their working hours, the PTA social inventory increased, the stock week increased by about 250 thousand tons, and broke through 3 million tons for the first time in March 13th this year. In late March, many domestic PTA installations were overhauled, the supply of PTA decreased, and PTA social inventories declined. However, with the overhaul of the device and the resumption of PTA supply, the PTA social inventory is once again back to the storehouse trend. The high PTA social inventory continues to suppress the PTA price. In April 24th, the domestic PTA social inventory was 3 million 400 thousand tons, an increase of 50 thousand tons compared with April 17th, a record increase of 2 million 265 thousand tons compared with the same period in 2019, a record high.

From the root analysis, the contradiction between supply and demand of PTA is still outstanding, and the continuous high domestic inventory makes PTA price vulnerable. Although the price of PTA has picked up in the past two days, the contradiction between supply and demand is difficult to alleviate in the short term, while the international oil price trend still has great uncertainty. Therefore, the PTA price will also be dominated by oscillating and weak operation, and the rebound will be limited. In the medium to long term, overseas epidemic determines the price trend of PTA. If the epidemic is improving, the PTA price is expected to rebound. On the one hand, the improvement of the epidemic situation can boost the global demand for crude oil. Combined with the implementation of the OPEC+ reduction in May, the international oil price is expected to stabilize, and PTA cost support will increase. On the other hand, after the improvement of the epidemic situation, the terminal weaving export channel is expected to be reopened, and the demand for terminal weaving will be improved, and the contradiction between PTA supply and demand will be eased. PTA inventory will also decrease. However, if the overseas epidemic is still grim, the demand for PTA will be weakened. Although enterprises can reduce supply through easing production or reducing their losses, the supply and demand contradiction will be eased, but the PTA price will stabilize at most, thus it is difficult to promote the rebound of PTA prices.