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Insight | Time: Mar 20 2019 1:47PM
How will PX supply evolve in Q2 after beating expectation in Q1
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With the startup of a new PX plant approaching, speculative behavior emerged. PTA futures and PX market declined heavily for two consecutive trading days this week. Nevertheless, some participants said that PX inventory could decrease during plant turnaround season in the second quarter, believing that PX supply could tighten in Apr-May.

In terms of processing spread, PX-naphtha spread remains at high end, but is expected to worsen. The history has told us that PX-naphtha spread slumped continuously in the last capacity expansion cycle from the end of 2013 to the first half of 2014. The drop was also partly attributed to the poor growth of polyester in the year of 2014. Compared with the drastic fall in the last cycle, the decrease now is relatively moderate.

PX capacity expansion in 2013-2014
Country Company PX capacity (kt/yr) Startup
China GS Qingdao Lidong 300 End-2013
China Sinopec Fujian 100 Q4, 2013
China Sinopec HRCC 650 End-2013
China Dragon Aromatics 1600 Aug, 2013
2013   2650  
China CNPC Sichuan 650 Feb, 2014
Saudi Arabia Satorp (Aramco/Total JV) 660 Mar, 2014
Singapore Jurong Aromatics 800 Test run in Aug-Sep, production from Oct
India ONGC 914 Test run in Jul-Aug, production from Sep
South Korea SK Energy 1300 H2 Jul, 2014
South Korea SK/JX JV 1000 Jun, 2014
South Korea Samsung/Total JV 1000 Mid-Jul, 2014
Algeria Sonatrach 220 Q1, 2014
2014   6544  

As of now, Hengli Petrochemical’s 2.25 million mt/yr of new PX capacity is proceeded as scheduled. Together with supply increment from other plants as well as lukewarm polyester demand, the strength in PX could be impaired. In addition, as there’re several upcoming plants in the second half year, PX market could be under the shadow of capacity expansion for the whole year.

If we take a look at the expansion in 2014, we can find a flood of PX stocks, which was a result from heavily capacity growth. Some market participants will turn to profit taking, causing selloff before the new capacity comes on line, and this is what a market does.

Then, how will PX supply and demand evolve in Q2? There’s uncertainty, yet it is for sure that the supply would not be so tight as some may expect. The chart below shows PX supply demand forecast till Jun. Output from Hengli’s new 2.25 million mt/yr plant is added from May. PX output is calculated with production loss due to plants overhauls taken into consideration, and the demand is based on polyester growth at merely 4-5% for Q2.

It the boom of PX coming to an end? Likely. The new capacity is a trigger, while the root cause lies in the slowing of demand growth.
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