Since the risk incident of the WTI May contract at the end of April, PTA has begun to bottom out. On the one hand, it is supported by the cost side, and on the other hand, the demand side has boosted market confidence.
With OPEC+ officially starting to cut production in May, US shale oil production passively declining, and European and American countries gradually relaxing regulatory measures, the huge scissor gap between supply and demand for crude oil in the early stage has shrunk rapidly. Especially after Saudi Arabia announced that it would cut production by an additional 1 million barrels in addition to the OPEC+ plan, the market became extremely optimistic about crude oil prices. In less than a month, the price of the June U.S. crude oil contract has risen from US$6.5/barrel to more than US$30/barrel. The current main contract has risen to US$36.6/barrel, smoothly surviving the month-to-month shift in May. and delivery of the June contract.
While oil prices have risen sharply in the past month and a half, the price of naphtha has increased from US$180/ton on April 23 to US$344/ton on June 4, and the price of PX has also increased from US$180/ton on April 23. It rose from US$415/ton on June 4 to US$488/ton on June 4. From the perspective of price difference, the price difference changes further downstream, with crude oil having the largest increase and PX having the smallest increase. Especially in the past week, PX prices have maintained an oscillating trend, which has also restricted the extent of PTA’s follow-up on crude oil to a certain extent.
In the absence of an improvement in terminal demand, the relationship between upstream crude oil and intermediate chemicals is complementary and mutually restrictive.
Europe and the United States have relaxed epidemic prevention restrictions since May. Although the time for comprehensive lifting of the ban has been pushed back again and again, it is undeniable that social life and economic order are slowly recovering, and it is expected to end in the second quarter at the latest After that, normal production and life may be slowly restored. This is actually one of the main reasons that can support the upward focus of oil prices.
From the perspective of textile and clothing exports, April data exceeded market expectations. Textile and clothing exports increased by 17.5% year-on-year. This was mainly because textile exports increased by more than 50%, and clothing exports were indeed Suffered heavy losses, falling 22.2% year-on-year. Overall, clothing exports declined year-on-year in March and April, while textile exports continued to grow, which also drove the total export value of textiles and clothing to continue to grow year-on-year after entering 2020. On a month-on-month basis, the total textile and apparel exports in March fell by nearly half to only US$15.43 billion. The total exports in February were close to US$30 billion. In April, they recovered to US$21.36 billion, which was a certain degree of recovery from March. Therefore, the market has relatively positive and optimistic expectations for the recovery of overseas terminal demand. If the European and American markets can fully recover around July, orders will arrive in China 1-1.5 months ahead of schedule. Therefore, export demand may continue to recover in May-June.
In fact, exports currently account for no more than 20% of the market demand for textile and clothing products, and the vast majority still comes from the domestic market. With the lifting of the ban in Wuhan and the convening of the National People’s Congress and the National People’s Congress, the domestic epidemic has been brought under control, and economic production and life have resumed. Judging from domestic retail sales data, the trend is similar to that of exports. It reached the lowest level in March, began to rise in April, and is expected to continue to recover in May. However, judging from the data as of April, “retaliatory” consumption has not yet been seen. Even if it reaches the level of the same period last year, it will be difficult, let alone filling the deep consumption hole from February to April. During the epidemic, FDY and staple fiber can be involved in the production of protective clothing and masks, and their profits are relatively considerable, while other varieties are relatively dull.
From the analysis of the operating rates of different links in the industrial chain, weaving operations have increased significantly since late May, while the production and sales of polyester have also picked up as oil prices have risen and market sentiment has improved. At present, filament stocks have been reduced, profits have improved, and production has gradually resumed, which provides good support for PTA. Whether the demand for textiles and apparel can really be as strong as it has been recently remains to be verified by the end market. At present, although weaving operations have rebounded significantly and are beginning to approach normal levels, gray fabric inventories have also risen to new highs. Therefore, the test of terminal demand has not been conclusive yet.
At the same time, it is worth paying attention to whether Europe and the United States will face a second outbreak of the epidemic, and whether the economic environment with soaring unemployment rates and companies closing down has buried a deeper crisis.
For PTA, amid this year’s global public health events, whether it is oil price fluctuations or changes in the macro situation, it still occupies a relatively favorable position in the industry chain. The most significant evidence is that even if PTA social inventory continues to accumulate to new highs, its processing price difference is still high.
Although PTA has benefited from rising costs and recovering demand recently, its long-term easing fundamentals are still difficult to change.
PTA basically showed a state of accumulated inventory in 2019. Although the actual downstream demand has increased significantly, PTA production is too high and has initially revealed a trend of oversupply. Since the Spring Festival this year, the stagnant demand caused by the epidemic at home and abroad has also greatly accelerated the accumulation of PTA inventory. In March, inventory hit a record high. Although it has decreased slightly recently, it is still at a historically high level. Not only that, the volume of PTA warehouse receipts is also continuing to increase.
In the long term, it is optimistically estimated that if all the 6.2 million tons of new polyester devices planned for 2020 are put into operation, the annual demand for PTA will increase by 2.5 million to 2.7 million tons. Looking back at PTA, the production capacity put into operation at the end of 2019 alone reached 3.7 million tons. If the new production capacity in 2020 can be put into operation as planned, the annual increase in production capacity will be nearly 5 million tons. The mismatched golden bull market in which polyester expanded faster than PTA has passed, and what followed was a bear market in which PTA expanded much faster than polyester.�A period of mismatch, and PTA’s steep Contango structure is also a reflection of this fundamental.
In addition, the upward pressure on PTA prices also comes from its high profits that are not in line with fundamentals. Due to the unique structure of the industry, PTA currently has relatively high bargaining power in all polyester links, so it can still occupy a large share of profits in the industry chain, mainly from the price difference between upstream naphtha and PX compression. However, from a longer-term perspective, if the global epidemic can be suppressed and recovered, in the accumulating inventory cycle of oversupply, PTA processing price differentials will be difficult to maintain at a high level for a long time, which will therefore restrict the growth brought about by its optimism. </p