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Insight | Time: Sep 8 2022 9:21AM  Editor:Louis
PX plant O/R hovers low despite high PX-naphtha spread
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Some may have doubt that PX-naphtha spread is relatively good recently, but why PX plant operating rate has not increased but decreased instead in China and Asia.


To look deep into the situation, we need to firstly have a glance at PX production process. PX is directly produced from MX via absorption, separation, and isomerization; or from toluene via disproportionation. To improve the economics, naphtha is used to produce toluene, MX and then to PX. The further upstream feedstock is crude oil and it is used as raw material to produce PX through several processes such as reforming, etc.


Currently, there鈥檚 only one PX plant relying entirely on merchant MX in China, i.e Sinopec HRCC鈥檚 second PX plant. However, several PX plants based on naphtha or crude oil still need to buy a part of MX or toluene in the production of PX. Meanwhile, MX, toluene and even naphtha can be used not only to produce PX but also as components in gasoline blending. Therefore, there鈥檚 competition in PX and refined oil products such as gasoline in terms of feedstock. It is reflected by the situation in May-Jun, when US gasoline price spiked, and aromatics prices in US and Asia were hence driven up.


China PX plant operating rate could hardly increase recently, and high gasoline prices also have something to do with that.


China refinery maintenance has increased and traveling activity has grown since Aug, and in addition, Sep and Oct are traditional peak consumption season. As a result, China gasoline price hikes notably. Then, prices of blending components rise in tandem. Meanwhile, PX price drops slightly over the same period. As refined oil products are stronger than PX, the latter is less competitive in terms of economics.


1. PX based on MX is under losses.

With some plants under maintenance, China MX supply has reduced. The imports also shrink as demand outside China is good. Consequently, China MX inventory at East China ports keeps decreasing continuously. However, some new PX plant prepared feedstcok MX in advance in Jun-Aug, and some plant continued buying MX though it was shut due to technical issue, therefore, MX price got supported.


Meanwhile, China gasoline price has been rising since Aug, and thus gasoline to MX spread and PX-MX spread move divergently. MX is more affordable to gasoline blenders than to PX producers. The profit of PX based on MX on yuan or USD basis is currently under losses, therefore, the incentive to raise PX plant operating rate with merchant MX is restricted, though the proportion of capacity based on merchant MX is small.


2. TDP units are also under losses.

TDP economics are also weak. Based on the approach of using 2 tons toluene to produce 1 ton benzene and 1 ton PX, the processing spread on USD basis has dropped to decade low in end-Aug or early Sep, and the yuan spread is also around record low, indicating negative profits. Under this circumstance, TDP plant operations are also restricted.


3. Profit of naphtha-based PX on yuan basis is weaker than on USD basis.

China yuan naphtha price has been stable since Jul, supported by rise in refined oil products and strengthened in Aug. However, Asian USD naphtha price kept weakening in Jul. Yuan to USD naphtha price spread has widened to around 3500yuan/mt. Naphtha-based PX profit on yuan basis is weaker than on USD basis. (The comparison of price spread is only rendered for reference.)


4. China domestic refinery operation is restricted.

Based on the cracking spread, olefins are under severe losses in and outside China since May. In addition, China refined oil consumption was slow in Apr-Jun, during the lockdown of Shanghai. As a result, refined oil product inventory was high and the profits were dragged down to negative. Therefore, though aromatics were profitable, the composite profit for refineries was barely positive in the first half of 2022. Though it has improved somewhat, domestic refinery operating rate is still suppressed at record low, which reins in the increase of PX operating rate and also lead to toluene and MX supply reduction. Hence, PX to toluene and MX spread is squeezed.

5. Plant maintenance and unexpected shutdown occur frequently.

Unplanned plant shutdowns have been frequently heard this year. Some plants are still under unexpected shutdowns, affecting PX plant operating rate.


Fujia Dahua shut its two PX lines with combined capacity of 1.4 million mt/yr on Aug 29. One line has resumed production and the other is restarting. The operating rates of the two lines were cut by 20% earlier due to technical issue. Sinopec Tianjin鈥檚 390kt/yr PX plant and Sinopec HRCC鈥檚 first 660kt/yr plant were also shut in Sep for 25 days due to technical issues. In addition, Sinopec ZRCC鈥檚 750kt/yr plant underwent maintenance in end-Aug.


In a conclusion, it is difficult for China PX plant operating rate to rise due to the above reasons. PX supply change in the future would be dependent on upcoming new plants, as well as the relation between PX and gasoline.

[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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