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Insight | Time: Mar 12 2018 4:28PM
Reasons for PTA's slump last week
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During the week of Mar 5-9, PTA market declined obviously and PTA futures May Contract dropped by more than 4%. The reasons are complicated.

I. industrial factors
1. In Mar 5-9, major PTA suppliers purchased less prompt cargoes so PTA prices returned to market fundamentals.

Since some major PTA producers purchased spot cargoes at high levels since the end of Feb to the early Mar, spot PTA prices maintained firm. The talking spread between futures and spot prices enlarged from 120-130yuan/mt to 200-220yuan/mt, which propped futures prices up. When major producers cut purchasing volume, the spread decreased somewhat. On Mar 9, prompt cargoes were talked at TA1705+80/120yuan/mt.

2. Downstream recovery was slower than expected and polyester sales kept weak so polyester inventory increased.

Run rates of downstream looms have recovered to 80% for Wujiang water-jet looms, 50-60% for Changshu weaving plants, 80-90% for Haining weaving plants, 50-60% for Xiaoshan/Shaoxing Circular knitting plants and 70-80% for Changxing water-jet looms. Wujiang and Changxing water-jet loom and Haining weaving plants enjoyed brisk sales but Changshu weaving plants complained about poor business. Most downstream plants still have enough PFY stocks, inactive to purchase PFY.

Macro environment
The United States side formally declared to impose 25 percent tariffs on steel imports and 10 percent on aluminum Thursday, with initial exemptions for Canada and Mexico, saying such results could be made for other countries through negotiations. The steel exports of China to US only accounted for 1.56% of total export volume, so the impact will be limited. However, if the trade war begins, it will hurt “the Belt and Road initiative” and affect many industries.

In the week of Mar 5-9, black futures (coke, coking coal, iron ore, thread, hot roll, manganese silicon, silicon iron) decreased by 7.69%, which caused bearish atmosphere and dragged PTA futures down.

As to PTA forecast, crude oil and bulk commodities may not provide bullish signs. PTA inventory may continue cumulating in Mar. Assume PTA and polyester production at 3.56 and 3.65 million tons, PTA inventory will increase by around 300KT. As to polyester products, some downstream plants will have to replenish stocks in the middle of March but polyester sales ratio may not reach 100% so polyester inventory will keep ticking up.

To sum up, after the slump, PTA market may stabilize in the short term but upward momentum may be limited concerning crude oil, commodity market and rising inventory.
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