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Is it possible for PTA to return to 5,000 yuan/ton?



Due to the faster-than-expected spread of the COVID-19 epidemic during the Spring Festival, the overall market performance was also relatively pessimistic. In the two weeks since the market opened after the hol…

Due to the faster-than-expected spread of the COVID-19 epidemic during the Spring Festival, the overall market performance was also relatively pessimistic. In the two weeks since the market opened after the holiday, most varieties of the energy and chemical sector have rebounded along with crude oil prices, and PTA is no exception. The main contract price fluctuated upward from the bottom of 4236 yuan/ton.

Up to now, as the epidemic situation continues to improve and there has been no recurrence, although the pace of resumption of work is still slow, the epidemic prevention and control has been appropriate, especially in other regions except Hubei Province. Better than expected, the market mentality changed to optimism.

Most market participants have relatively pessimistic expectations for the PTA market in 2020, mainly because the fundamental supply and demand relationship is indeed relatively loose, and the bull market style of the previous two years may be difficult to reproduce. At the end of 2019, all the newly added 3.7 million tons/year production capacity have been successfully put into operation, and there are still plans to add more than 10 million tons/year new production capacity in 2020. Although most of it may be launched in the later stage, it is still a big pressure. In fact, at the end of December 2019, after PTA continued to accumulate inventory, the processing price difference was even as low as 350 yuan/ton. Subsequently, mainstream factories concentrated on maintenance and reduced loads to relieve inventory pressure, and the price difference recovered, and even strengthened in recent months. However, the massive inventory accumulation during the Spring Festival has made matters worse. The current inventory level is even close to the historical high since 2016, and the PTA futures market has returned to a solid Contango structure.

When will terminal demand recover? Is there any chance of returning to 5,000 yuan/ton in the future?

Shengze China Oriental Market officially opened on February 21. Keqiao also issued a resumption announcement saying that the China Textile City Market officially resumed on February 18 and implemented flexible business hours. 10:00-16:00. According to Zhuochuang’s research, local enterprises in Shaoxing, Wenzhou, Jiaxing and other places will resume work no earlier than February 17; the first batch of water-jet, circular knitting and warp knitting enterprises in Shaoxing, Haining and Xiaoshan are currently scheduled to resume operations in the third week of February Return to market. Printing and dyeing companies in Jiangsu generally resume work around March. Most textile companies in Jiangsu’s Shengze, Changshu and Taicang areas plan to resume work one after another after February 17-21. Fujian Quanzhou circular knitting machines and Youxi warp knitting enterprises initially plan to resume work one after another after February 17. Circular knitting machines and warp knitting factories in Jieyang, Guangdong plan to return to the market one after another after February 21.

For the terminal market, the main problems in resuming work include: employees fail to arrive at work in time, employees need to be quarantined after their return and quarantine conditions, resumption of work requires a large amount of epidemic prevention consumables, and the workplace is not safe. It is conducive to ventilation, upstream and downstream logistics are not completely smooth, and terminal purchase demand is insufficient. This week we can see that through various measures implemented by Jiangsu and Zhejiang provinces, the number of reworkers has increased significantly in the second half of the week compared with the first half of the week, but it is expected that it will still take more time for terminal construction to fully resume. Judging from the current start-up data, terminal start-up has not seen substantial improvement this week. The weaving industry load is still below 10%, and the overall start-up of polyester has to drop to around 60%. This directly leads to a substantial accumulation of inventory in the entire industry chain, which has also become the main reason why the market is generally bearish on PTA.

According to the recovery situation of China Textile City in the three days since the opening of the market, although in absolute terms, there is still a big gap with the daily level before the holiday, the speed of recovery is still surprising. Invigorate. In the first week of rework during the Spring Festival in 2019, the trading volume remained at a level of about 1 million meters for about a week. The trading volumes at the opening of this week were: 650,000 meters, 970,000 meters, and 990,000 meters, which have been maintained at similar levels to last year.

The current polyester production capacity that has been reduced or stopped is about 10.18 million tons/year in Zhejiang Province, about 7.4 million tons/year in Jiangsu Province, and about 7.4 million tons/year in Fujian Province. 2 million tons/year.

In the wave of resumption of work, various regions in Zhejiang have introduced preferential policies, and the “treatment” for reworkers is getting higher and higher. On February 9, the Hangzhou Municipal Party Committee and Government issued the “About Strictly Doing a Good Job” “Several Policies for Epidemic Prevention and Control to Help Enterprises Resume Work and Production”. On February 16, the Ningbo Municipal Party Committee and Municipal Government jointly issued “Several Opinions on Promoting the Resumption of Work and Production of Enterprises”. On February 16, Huzhou City issued “About Subsidies for Enterprises to Resume Work and Production” “Opinions on Rewards”, Taizhou, Jinhua and Yiwu have also successively introduced preferential treatment policies for reworkers. This week, Hangzhou, Nanjing and other places also gave priority to opening outdoor parks and tourist attractions. While strictly controlling the epidemic, they are committed to resuming production and residents’ daily life. Under such a situation, the pace of resumption of work next week is expected to be greatly accelerated.

Polyester inventory is likely to reach its highest point this week. As terminals resume work faster next week, the inflection point for polyester may arrive. Among the currently suspended polyester companies, 94% of the production capacity restart time is in the to-be-determined stage. We expect that this part of the production capacity will gradually recover after the inventory pressure of polyester is eased, but it will take more time for demand recovery to continue to be transmitted to PTA. long time.

In addition, the control and development of the epidemic are still better than expected. If there are no new cases for 14 consecutive days, the epidemic can be judged to be lifted. With the exception of Hubei Province, new cases in other parts of the country continue to decline. In addition to the “prison” cluster infection incident that broke out on the 21st (it is still believed that this cluster incident will not have an impact on the number of social infections), many areas have begun to see “zero new infections”, and the number of new infections in most areas has also down toSingle digits. After a long period of “isolation” and “staying at home”, we believe that the demand for terminal retail may usher in explosive growth in the period after the epidemic is over.

Specifically speaking of the PTA market, the improvement in supply and demand depends on the recovery of polyester production, but prices are already at low levels. In terms of price difference, as of February 20, the processing price difference of PTA was only 358 yuan/ton, while the processing price difference of PX was as low as 239 US dollars/ton. For manufacturing companies in the intermediate links, the extremely low processing price difference makes the support below them relatively stable. Unless crude oil prices fall sharply again, it will be more difficult for prices to continue to decline now that all the bad news has been exhausted. On the contrary, if there is more positive news than expected or some other positive information, such as accelerated terminal recovery, rising crude oil prices, early end to the epidemic, etc., the price upward acceleration should be very large. If there are multiple positive stimuli, it is very likely that the PTA price will return to 5,000 yuan/ton. However, high inventory is an indisputable fact, and even if the supply and demand relationship of PTA improves in a short period of time, it is unlikely that there will be a significant destocking. Therefore, the price “soaring into the sky” may only be a “dream”. If the PTA processing price difference rises by more than 700 yuan/ton, the market price will be under pressure again.

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Author: clsrich

 
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