Asian PTA supply to lengthen, weak demand persists amid pandemic fallout

SINGAPORE (ICIS)–Asian purified terephthalic acid (PTA) supply is poised to stay long in the near term, as downstream demand has sapped because of the fallout of coronavirus spread globally.

PTA inventories in China remains high, with levels heard north of 3m tonnes.

As seen in the above chart, PTA futures warehouse receipts had been on a climb up since after the Chinese Lunar New Year.

Supply exceeding demand was largely a result of PTA facilities maintaining relatively high operating rates in comparison with downstream polyester facilities in China.

Over the last weekend, both Shaoxing Reignwood Petrochemical and Hengli Petrochemical restarted their PTA facilities.

The spread between feedstock paraxylene (PX) and PTA has been hovering around the healthy level of $85/tonne since the beginning of March.

It is worth noting that the spread faced by producers located in China are lower compared to regional producers.

This is partly driven by an oversupplied market, and the recent depreciation of the China yuan (CNY) against the US dollar.

China imports the bulk of feedstock PX, which is done on a US dollar basis, and the depreciation of the CNY adds to the production costs.

Polyester operating rates in China rose, but took a longer period to recover compared to the last three years.

Sales achieved in the polyester sectors continues to be slow, and this is resulting in a buildup in polyester inventories, limiting the buying appetite for PTA.

Polyester inventories

	PFY (days)	PSF (days)	PET (days)
27-Mar	20–39	14–25	15–20
20-Mar	18–35	12–23	14–19

With the spread of the coronavirus globally, it had brought about a slowdown in the demand for polyester and its end products.

Exports of textiles, clothings, and shoes to the West had either been reduced or cancelled.

In India, demand for PTA came to a standstill, while polyester operating rates drastically dropped with the country on a lockdown.

Amid a bearish demand outlook, supply of PTA within Asia is expected to lengthen, with limited scheduled shutdowns at PTA facilities going forward.

A relatively healthy spread between feedstock PX and PTA will entice producers to maintain operating rates, until the spread narrows significantly.

Inventories are poised to increase, and this will likely create a huge risk for inventory loss, especially amid a volatile upstream energy markets.

Focus article by Samuel Wong