Starting from late October, PTA has started a price reduction mode, and the PTA spot price has The spot price on the 16th dropped from 3,405 yuan/ton to the spot price on November 5, which was 3,150 yuan/ton. However, as of mid-November, it was still stuck in the historically low range. In addition to the weakening of downstream demand orders, the impact of international oil prices and overseas events and the start of polyester production have been limited. Moreover, with the production cycle and supply increase expected, the weak trend of PTA is reasonable.
Figure 1 PTA price and profit trends in East China
The recent PTA market trend is really unbearable, and it also confirms that In response to the market’s previous weak expectations, as of November 5, PTA processing fees have dropped to less than 500 yuan/ton. This is the first time after the epidemic that the PTA processing fee fell below 500.
Currently, the price and processing fee of PTA are both at historical lows. Does that mean that PTA companies have suffered serious losses? Why hasn’t the company stopped production yet? Why are prices so low and some leading companies continue to launch production expansion plans?
Do current PTA companies make money?
With prices so low, can companies still make money? The key lies in the company’s processing cost control. A very important phenomenon in the chemical industry is that the device structure determines the processing cost. Different device structures determine the different processing costs for producing the same variety. The processing costs of old devices are higher, while the processing costs of new devices are lower.
The reason why the processing cost of the new device is low is mainly because the conversion rate of raw materials is improved and the unit consumption of raw materials is reduced. That is to say, the new device can obtain more finished products by consuming the same raw materials. Therefore, as the device With continuous upgrading, the processing costs of new devices are continuously reduced.
Another important factor that determines processing costs is the size of the enterprise. There is a concept in economics called economies of scale. As the scale of output continues to expand, the average cost continues to decrease. This phenomenon is also called the “marginal effect.” Simply put, the larger the enterprise, the higher the marginal effect and the lower the average cost.
Zhuochuang Information divides the equipment into three categories. Category A has a production capacity of less than 1.4 million tons, Category B has a production capacity between 1.5 and 2.2 million tons, and Category C has a production capacity of more than 2.2 million tons. According to the scale effect, the processing cost of Class C devices is the lowest, and the processing cost of Class A devices is the highest. Judging from the current situation, the structural proportion of the three types of devices is roughly A:B:C=3:2:5; some insiders estimate that the complete cost of a Type B device is around 450, and the complete cost of a Type A device is More than 700. In other words, the current processing fee of 463 can barely match the processing fee of Class B devices without losing money, while Class A devices already have a loss of about 240 yuan.
Does that mean the industry will no longer work? uncertain! At present, the most advanced device and the lowest cost is the Hengli Petrochemical 4# device. Its complete production cost of PTA is only 319 yuan. The variable cost after deducting amortization and depreciation is only 256 yuan.
It should be emphasized here that in economics, whether micro-enterprises continue to produce does not depend on whether the price falls below the full cost, but whether it falls below the variable cost, that is, deducting amortization from the full cost. cost after sales and depreciation. In other words, with the current processing fee of 463 yuan, Hengli Petrochemical still has a profit margin of about 150 yuan, and there is still 210 yuan before it is forced to stop production. People are living a good life.
So, you can understand why the leading companies push prices lower and continue to expand production capacity and install new equipment. They just take this opportunity to lower prices and sell your backward production capacity and products. Small-scale enterprises were eliminated. Now is the perfect time for them to grab market share.
Table 2 The top ten companies account for about 80% of the production capacity of the PTA industry
In addition, everyone must pay special attention to this number. Under the current most advanced device level, The bottom line of PTA cost is 256 yuan, that is, if the processing fee of PTA is lower than 256 yuan, no one in the industry can make money, so in theory, this value is the bottom line of PTA processing fee. If even the most advanced equipment can no longer make money, no one in the industry will want to work.
The production capacity will reach 100 million tons
What will be the core competitiveness of PTA in the future?
PTA’s main problem is absolute overcapacity. From the fourth quarter of this year to the first quarter of next year, PTA’s new production capacity will be gradually released.
Since 2019, the domestic PTA industry has embarked on its second concentrated expansion period in history. According to statistics, following the commissioning of Sichuan Energy Investment’s 1 million-ton unit in May 2019, the first phase of Xinfengming’s 2.2-million-ton unit was successfully put into operation in November of the same year. Then in January 2020, the fourth phase of Xinjiang Zhongtai and Dalian Hengli Petrochemical came into operation one after another, with a total production capacity of 3.7 million tons. In less than a year, PTA production capacity increased by 6.9 million tons, an increase of 13%.
In the later stage, the fifth phase of Hengli is about to be completed, and the second phase of Xinfengming is scheduled to be put into production in September. At the same time, Fujian Baihong, Xinjiang Lanshan Tunhe, Jiangsu Honggang Petrochemical and Ningbo Yisheng will all be put into production in 2020. The plan involves a total production capacity of 17.1 million tons. If these new production capacities are released as scheduled, it is expected that the total domestic PTA production capacity will reach 69.53 million tons by the end of 2020, with a production capacity growth rate of 32.6%.
After several years of integration, acquisition, and reorganizationAs well as expansion, private companies such as Hengli, Rongsheng, Hengyi, Shenghong and Tongkun have emerged. With the commissioning of integrated projects, manufacturing companies have further increased their ability to control the market. my country’s PTA production capacity will continue to grow significantly in the next few years, and private enterprises will still be the main force in expanding production.
Table 3 my country’s planned PTA production capacity will exceed 40 million tons/year in the future
The foreign epidemic is still severe, domestic demand still needs to recover, and the processing gap remains low. Coupled with the continued decline of crude oil, it is difficult to have strong support on the cost side.
On the whole, the cost market is still expected to be volatile, and there is currently no guidance on stimulating factors. The processing gap between supply and demand of PX itself has improved slightly, and there is no obvious contradiction between supply and demand. However, the social inventory of 3.8 million tons is still the key factor restricting the upward trend of PTA. Moreover, during the production cycle of PTA, the upward momentum of PTA is really limited. However, according to the cost valuation calculation, there is no logic of deep decline on the cost side, and the space below the cost valuation is limited. The PTA market is mainly weak and volatile.
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