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Insight | Time:Jul 26 2018 11:42AM
The logic and thinking in the rise of PTA
 
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PTA market showed bullish trend with the push of funds recently.

As for the logic of the rise of PTA, in fact, if you look at the upstream and downstream, it is really reasonable. First, crude oil fell, but the decline was not deep and may keep firm with the possibility of the block of the Strait of Hormuz. Second, from a macro perspective, although the trade war has always been our concern for the future, the trade war is currently showing the result of the constant depreciation of the renminbi. Thus PTA-PX spread has not expanded with the price increase. In addition, the central bank is actually deliberately relaxing monetary policy. Third, PX market was actually stronger than the crude oil, mainly because of the destocking of PX. According to the calculation, the domestic PX social inventory may reach 2.4 million tons in July-August. Fourth, the fundamentals of the PTA market was not bad. In August, it is estimated that the inventory may fall further. Fifth, the inventory of polyester products was still in a correspondingly low level.

Is PTA rising sustainable ?

Crude oil
If Iran blocks the Strait of Hormuz, then the crude oil market may see dramatic increase, because about 30% of the oil trade will pass through the Strait of Hormuz. If the strait is forced to close, 19 million barrels of crude oil will be affected every day.

Without considering this, the supply and demand of crude oil was not bad.

According to the data of the US Energy Agency (EIA) on July 10, 2018, the gap between supply and demand in the third quarter is 70,000 barrels per day. The supply and demand will be balanced in the fourth quarter. Therefore, as for crude oil, as long as there is an unexpected production loss, the prices will rise. Generally, crude oil prices may probably hover at relatively high level, but the final market trend depends on various unexpected situations.

PX
PX market fundamentals was tolerable, but the the spread between PX and naphtha expanded. According to the price difference between PX and naphtha, the spread increased from $339/mt at the beginning of July to $373/mt on July 20. In fact, PX and naphtha spread has reached the corresponding high point. If the spread continues to expand to $400/mt, will it lead to an increase in short-selling sentiment? 

PTA
PTA inventory is very likely to see slight reduction in August, but for the current price, are any buyers willing to chase? Actually, the market opinions are still divided. Some traders may buy at a premium of 80yuan/mt, but most of them bid at a premium of 40-50yuan/mt.

On the one hand, mainstream suppliers sold PTA in large volume before and these sources were basically traded among some traders. On the other hand, PTA supply of Liwan and Hanbang increased on the market. The low-priced PTA may affect the market prices.

If the basis continues to fall, the spot market may lose support; or with RMB depreciating, PTA-PX spread is narrowed, which supports the PTA spot market. Therefore, in the face of falling PTA spot-futures spread, the renminbi correspondingly appears to be more important because PX-naphtha spread has been relatively high, and the fundamentals are tolerable. If the PX rises sharply, the short-selling sentiment will increase accordingly.

For the devaluation of the renminbi, although the cross-border arbitrage of financial institutions currently drags the renminbi, when the central bank will intervene still depends on the July data of banking foreign exchange sale and purchase and the exchange rate.

Polyester
Whether the polyester market trend is sustainable will depend on the "big cycle", such as the real estate cycle. Under the monetary easing, the funds are expected to flow into the infrastructure and real estate sectors, which is actually a positive factor for many industries. For polyester, it is mainly demand for home textiles. The impact is difficult to see in the short term, but will be reflected in the subsequent time period.

The other factor is the inventory of polyester products. At present, polyester products inventory is at low level. Therefore, in the short term, if the raw materials rise, polyester product prices and sales may be stimulated up. In the long run, we still need to pay attention to the impact of the continuous release of new capacity.

In summary, PTA upstream and downstream market fundamentals is expected to maintain tolerable in August. The driving force of PTA market still exists, but in the process of rising, we should pay attention to PX and naphtha. If the spread is widened, the short-selling sentiment will increase, and PX will have a callback. For PTA, futures and spot spread has begun to fall, and it is necessary to pay attention to when the devaluation of the renminbi will end and whether the PTA-PX spread will change. For polyester market, the attention can be paid to changes in daily sales.
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