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SunSirs: Loose Cost Support, China PTA Futures Limit Drop

March 04 2021 08:18:06     SunSirs (Linda)

On March 2, the domestic futures market closed. Commodity futures fell mostly. Energy and chemical industry led the decline. Among them, the PTA limit fell. By the end of the market, the main PTA fell 5.02% to 4574 yuan. The spot market also showed weakness. According to SunSirs price monitoring, the average market price on March 2 was 4536 yuan/ton, down 4.36% from the previous trading day.

Crude oil production is expected to loosen cost support

The crude oil market is facing a risk of correction, and the PTA cost side shows signs of loosening. At the end of February, Saudi Arabia reduced production by 1 million barrels per day from February to February, the extreme cold weather in the United States led to a decline in U.S. shale oil production, and the U.S. $1.9 trillion epidemic relief program continued to advance. International oil prices remained strong. But entering March, as the OPEC+ meeting approached, the crude oil market showed a certain cautious wait-and-see sentiment. It is expected that OPEC+ will relax its restrictions on crude oil production at this week's meeting. It is reported that OPEC will increase production by 1.6 million barrels per day from April. And Saudi Arabia has hinted that it will not rule out the possibility of canceling additional production cuts in March, while Russia and other countries may propose small increases in production. With the increase in production or exceeding expectations, the market is worried that the supply and demand of crude oil will deteriorate in the future, so the price has experienced a narrow correction for days.

Self-supply surplus contradiction phased improvement

However, from the perspective of PTA fundamentals, a short-term improvement is expected in March. Equipment overhauls increased due to low profits. Many PTA units in March-April were under overhaul. The estimated overhaul capacity is as high as 19.65 million tons (including those that have been shut down). In a short period of time, there may be phased destocking, and market supply and demand will ease slightly, including Hengli Petrochemical 3 sets of 6.9 million tons/year equipment, Xinfengming's 5 million tons/year equipment, Honggang Petrochemical's 1.5 million tons/year equipment, Reignwood Petrochemical's 1.4 million tons/year equipment, Zhuhai BP 1.25 million The planned overhaul of the ton/year device. In terms of new equipment, Honggang Petrochemical’s 2.4 million tons/year new equipment is expected to be discharged in early March, so the PTA maintenance will periodically hedge the pressure of the new equipment to put into production.

Downstream resumption of work and production demand remains strong

In addition, from the demand side, after the Spring Festival holiday, downstream polyester and terminal weaving companies gradually resumed work and production, and market trading activities have also begun to pick up. As local governments advocated the local Chinese New Year this year, the start of polyester plants during the holidays was slightly higher than in previous years. In addition, the post-holiday employment situation of non-local employees was better than in previous years. After the festival, the start of polyester plants showed a rapid recovery trend, and the demand for PTA continued. increase. At the same time, affected by the recent surge in raw material prices, under the sentiment of "buying up but not buying down", polyester production and sales have increased. In March, the polyester operating rate will quickly rebound to around 90%. PTA demand will remain strong. The traditional demand peak season of "three silvers and four" is coming soon, and the operating rate of looms in Jiangsu and Zhejiang has also been raised to more than 70%.

SunSirs analysts believe that the current PTA is still dominated by the cost side. In the short term, although the decline in the cost side will cause the pta price center to shift downward, it is expected that the spot liquidity will be further tightened due to the decline in supply and the rebound in demand. The short-term improvement also has certain positive support for prices. However, in the medium and long term, the overhaul period of PTA devices is mostly half a month. With the restart of the devices in the market outlook and the smooth commissioning of new devices, the supply is expected to reach a new high again. In addition, the overall social inventory is already at a high level of nearly 5 million tons. It is expected that the overall supply and demand of PTA will still be in a situation of high production, high supply, and high inventory in 2021, and the contradiction of oversupply has not been substantially eased. If the cost side collapses and the supply and demand side is in a negative situation, it is expected that the PTA price will still fall back.

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