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Insight | Time: Aug 27 2020 2:36PM
PX still under strains from oversupply and high inventory
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PX-naphtha spread dropped further after a period of range bound around $160/mt, to hit $138/mt Aug 25, retouching the low point in early Jul.

The spread has been shrinking in 2020, and there has not been any sign of improvement yet, in the backdrop of overhang of excessive PX supply and high inventory.

Though PX producers have been suffering losses under poor economics since the second quarter, the average operating rate of China local PX plant is kept above 80%. In Asia, the overall operating rate is slightly lower, but massive production cuts does not happen.

PX producers are seemed to be playing a chicken game, unwilling to be the first to cut production while anticipating cuts from others so as to maintain their market shares, especially when there are new PTA plants expected to come on stream.

However, would PX supply glut ease and would the fundamentals improve in the third and last quarters?

On supply front, China’s Zhongjin Petrochemical plans to shut its 1.6 million mt/yr PX plant in Oct for maintenance lasting 40 days, and Japan’s Idemitsu is to shut 210kt/yr PX plant in Sep-Nov for 2 and a half months. Meanwhile, Dongying Weilian Chemical’s 1 million mt/yr and Sinochem Quanzhou’s 800kt/yr fresh PX plants are expected to begin production in Sep and Oct. In addition, Sinopec Hainan Refining (HRCC)’s 1 million mt/yr PX facility may restart.

On demand side, Xinfengming is expected to start its new 2.2 million mt/yr PTA plant in Sep or Oct, and Fujian Billions’ new 2.5 million mt/yr PTA plant is slated to start in the end of 2020. Meanwhile, several old plants have postponed the maintenance as the margins are currently acceptable. Given the nearing of new plants and the schedules of old plant maintenance, China local PTA production could continue rising.

It would be tough for PX inventory to reduce in the third and last quarters.

PX-naphtha spread may continue hovering low, under strains from high inventory, unless more producers start to reduce operating rates and cut production.
[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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