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Insight | TimeApr 21 2017 7:11PM
PTA and MEG to hit the bottom end or not
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Commodity futures sharply rebounded yesterday afternoon with glass futures even hitting the limit-up. Some thought that it might be a signal that the Central Bank eased the liquidity, yet it may rather be a corrective rebound after the slump.

                       Iron ore K line

                       Rubber K line

Iron ore and rubber which led the way in the rebound were still on the downward trend without a supportive fundamental. And pick-up of iron ore has approached the upper limit. 

Polyester feedstock has been in downturn since Feb with MEG even plunging over 30%. Given the passable fundamentals and the pick-up in commodity market, a corrective rebound is reasonable. Yet a stable outlook or a satisfactory rebound is still to be watched.

Despite that its cash flow has been squeezed to the level before the hikes in the fourth quarter of 2016, MEG is still deeply influenced by capital liquidity and market sentiment. The tightened liquidity and relatively sufficient contract goods mean that MEG may much more be driven up by intermittent demand in the short run and thus a sustained hike is still yet to come. What¨s more, the mid-long term supply and demand balance is not positive amid expected rising imports and uncertain growth of polyester product output. Though some existing or new polyester units may be put online in the second quarter, demand for MEG is unlikely to enjoy a substantial spike on the high proportion of contract goods of polyester plants.

For PTA, supply and demand will support the market in the short term as plant inventory fell in the first half of Apr on the turnaround of Yisheng Dahua and Hengli. And social inventory is expected to distinctly fall in the second quarter as many units will shut for maintenance.

PX-naphtha and PX-PTA price spreads have declined to a low level, yet crude oil price fall may exert some negative impact on the market. And as polyester run rate sustains high in the short run, polyester product inventory and demand for PTA may not have negative impact on PTA, so PTA may go flat and rebound in the second quarter. In the short term, the pressure will be mainly from the ACP talk and traders to close short positions.

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