In the second half of the year, the giant will put into operation two PTA production lines with a to
Market participants said that the Asian purified terephthalic acid (PTA) market outlook is worrisome due to the dual impact of a large amount of new production capacity coming on stream in China in the second half of this year and an uncertain demand outlook.
Against the backdrop of a new wave of new crown pneumonia in Asia, especially in India, coupled with global logistics pressures due to container shortages make the outlook for PTA demand more uncertain in the second half of this year.
Despite the worrisome outlook for the PTA market, some market participants are still banking on a possible rationalization of PTA plant capacity in China, while mass vaccination may contain the new crown pneumonia epidemic and create some price support factors in the second half of the year.
Large-scale capacity expansion in China drags down PTA production margins
China added 7.2 million tons/year of PTA capacity in 2020 and 4.9 million tons/year in the first quarter of 2021. In the second half of this year, China is expected to have 6.6 million tons/year of new PTA production capacity coming on stream. According to people familiar with the matter, Yisheng Petrochemical will put into operation two new PTA production lines in the second half of this year, each with a design capacity of 3.3 million tons/year, one of which is expected to be put into operation in July and the other one may be put into operation at the end of 2021.
Market sources said that this intensive capacity expansion made China PTA margins fall into negative territory at the end of 2020, and has been in a loss-making situation in the first half of this year, and may continue to maintain a loss-making situation in the second half of this year. Platts energy information data show that from January 1 to May 12 this year, the average price difference between China's domestic production of PTA and raw material paraxylene (PX) was 335 yuan/ton (about $52/ton), which is below the usual break-even level of 500 to 700 yuan/ton. The average spread between U.S. dollar-denominated PTA and PX over the same period was about $93.66/mt. The price of U.S. dollar-denominated PTA cargoes is somewhat supported by tight supply in international markets outside of China in early 2021. While this spread is close to the usual break-even level for Asian PTA producers, expensive acetic acid feedstock costs are putting pressure on many producers.
PTA margins are generally on a downward trend and may compress further in the second half of this year, although they may occasionally rebound slightly as short-term demand supply fundamentals change, a Chinese PTA producer said. A PTA trader said that despite the lack of fundamental price support, the absolute trend of PTA prices in the second half of the year depends on the trend of upstream paraxylene and crude oil prices.
Market keeps an eye on Indian demand
Since China became self-sufficient in PTA by the end of 2020 and India became the largest PTA importer in Asia, PTA trade players have been closely monitoring demand in the New Crown pneumonia epidemic-ravaged Indian market.
In India, the timeline for demand recovery in the polyester chain is unclear, but market participants are banking on the hope that the situation in India's new crown pneumonia epidemic will improve around mid-June. However, even if the number of infections is significantly reduced by strict blockade measures in Indian states, the normalization of trade activities and demand recovery in India can only occur in the second half of the year, sources said. India's new wave of new crown pneumonia infection has disrupted the supply chain and manpower supply, even if the manufacturing industry is allowed to operate during the blockade, India may also take some time to get back on track.
Once demand recovers in the second half of the year, India's domestic PTA supply will tighten, sources said. This could lead to a surge in domestic import demand in India, but a shortage of containers and expensive freight rates could dampen that import demand.
Chinese capacity and exports determine Asian market performance
In addition to uncertainty about Indian demand, the outlook for the Asian PTA market depends heavily on the progress of new PTA capacity coming online in China, potential capacity rationalization adjustments and China's planned PTA exports in the second half of 2021, two Asian PTA producers said.
PTA trade participants are banking on the fact that the overall start-up level of PTA units in China may be revised downward or less competitive units may be closed. After this, the PTA industry will be able to cope with massive capacity expansion and margin squeeze. However, market participants said that capacity rationalization and adjustment will be a long-term process, and it is unlikely that there will be significant changes in production in the second half of this year. They added that a total of about 4 million tons/year of Chinese PTA capacity has been closed since the end of 2020 for various reasons and is likely to remain closed in the near future.
Chinese customs data showed that China's PTA exports reached 196,592 tons and 338,675 tons in February and March this year, respectively, hitting consecutive record highs and well above the monthly average export level of 70,565 tons in 2020.
One PTA producer said it would be difficult to compete with competitively priced Chinese PTA cargoes unless there are freight and tax advantages. Elsewhere in Asia, South Korean PTA exporters will continue to target the European and Turkish markets, taking advantage of South Korea's free trade agreements with those countries, while Chinese and Taiwanese producers are actively exploring various ways to diversify their exports.
Source: Jingmen Petrochemical Pang Xiaohua from PLATTS, China Chemical Information Weekly
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