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Insight | Time: Aug 23 2019 9:26AM
PTA market still weak under inventory pressure
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The polyester polymerization rate has dropped from 93.6% to 86.3% at the beginning of August as the cash flow of polyester products has been compressed since July. In mid-August, after a round of centralized procurement, the inventory of polyester products dropped sharply and the prices rebounded. Polyester raw material prices fluctuated at a low level, so the cash flow of polyester products improved and the polymerization rate rebounded again. According to the current restart schedule, the operating rate at the end of the month is expected to rise to 90%.

PTA price and polyester polymerization rate have a high correlation this year. PTA prices were pushed higher when the polymerization rate climbed up to high level. Recently, with the increase in polymerization rate, will PTA prices stop falling and rebound?

Judging from the supply and demand situation of PTA, under the influence of high PTA-PX processing spread, not many PTA producers had maintenance plans after May, resulting in a slight increase in the inventory of PTA. Since August, Reignwood, Yisheng, Jialong, Liwan and Fuhua have reduced the output due to various issues. Meanwhile, the polymerization rate has rebounded. The supply and demand in August have gradually improved. It is expected that the inventory will moderately accumulate in August. At present, the PTA-PX processing spread is maintained at around 1,000yuan/mt. According to the turnaround schedule, PTA output in September and October will still be high, and the inventory is estimated to increase around 100-150kt.

From the perspective of the structure of inventory, the PTA stock of polyester plants remained at a low level in June, while the warehouse receipts was relatively high, so the inventory liquidity was tight. The volume of warehouse receipts has dropped sharply recently, and the liquidity tension has eased. The increase in inventory is mainly in the stock of polyester plants. Around mid-August, as PTA prices fell to relatively low levels and sales of polyester products improved, polyester producers prepared more PTA stock to fix the profit. The PTA stock of the polyester plants kept at about 5 days. In the short-term, if there is no support from favorable sales of polyester products, the procurement enthusiasm of the polyester producers is modest.

In the terminal market, the operating rate of fabric mills in Jiangsu and Zhejiang has rebounded since mid-August and risen to 68%. The order volume in some areas has improved.

In the short-term, with the advent of the traditional peak season, the operating rate of terminal market gradually improved. The polymerization rate is expected to continue to increase as the inventory pressure was relieved. The PTA stock in polyester plants is slightly high, so the stimulation of PTA demand improvement on PTA price has also weakened. In the medium and long term, PX and PTA new units are expected to be put into production. Under the pressure of cost and supply, as well as the expected weak demand in the fourth quarter, the weak trend in PTA market is difficult to change.

[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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