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Insight | Time: May 14 2020 10:45AM
PX-naphtha spread approaching previous lows
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Since late Apr, the coronavirus pandemic has been getting tamed. International crude oil price rises significantly amid easing of lockdowns globally, expectation of economy re-opening, coupled with implementation of production cuts practiced by OPEC and its allies. As of May 13, WTI crude oil futures soared to $25.29/bbl and Brent futures rose to $29.19/bbl from previous lows (the rollover from May to Jun contracts for crude oil also contributed to the price rise). However, naphtha price lagged behind, and that of PX advanced even more slowly than its feedstock.

As a result, the spread of PX to naphtha and MX was crunched to a low level, at around $235/mt and $60/mt respectively as of May 13, approaching the low points seen in late 2019 (PX-naphtha spread around $222/mt in the end of Nov 2019). The biggest constrain weighing on PX price is the fast-rising inventory since the first quarter of 2020.

Looking forward, PX inventory could not be consumed in short term.
1. Asian plant operating rate may increase on the completion of maintenance
There are fewer plants undergoing overhauls in 2020 compared with previous years. Currently, some PX plants in Asia are slated to complete the maintenance, and may get restarted gradually.

Asia PX plant maintenance schedule

According to the announced maintenance schedules, China PX operating rate could drop in May-Jun due to the shutdown of Sinopec ZRCC’s PX plant, however, the operating rate outside China could increase.

2. Demand for PX may contract
China PTA plant maintenance schedule

As PTA-PX spread was good, PTA producers were spurred to keep high operating rates. Some shutdowns were postponed, however, the maintenance is inescapable at particular time intervals to ensure the safety. PTA operating rate is unlikely to increase further in the rest of second quarter, but may drop instead. That is to say, the contraction in demand for PX is more likely.

In a conclusion, PX remains under the pressure of inventory build-ups. The price is under immerse strain from high inventory and dwindling storage tank space. Under this circumstance, production cuts seems to the only way out of the woods.
[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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