Crude oil continued to decline during the "May 1st" holiday, and it is expected that PTA prices will still be under pressure on the first day after the holiday. However, the current oil price has entered the undervalued range, and it is expected to stop falling later. Negative demand feedback is expected to come to an end, and attention will be paid to when the polyester load will stabilize and rebound.
Since the end of April, PTA futures have changed from the strong trend in March, and the price has continued to fall. The lower center of gravity of crude oil and the negative feedback of demand are the main factors causing the price drop of PTA.
The price of crude oil fell
Originally, crude oil prices performed strongly due to OPEC+ announcing more-than-expected production cuts. As the market digested the news of production cuts, interest rate hikes and recession expectations began to dominate the trend of oil prices again. At present, the market continues to be pessimistic about the demand for crude oil, coupled with the decline in the cracking price of refined oil, the willingness of refineries to process has declined, and the prospect of crude oil demand is not good. However, as oil prices move downward, the current price has entered an undervalued range. If the supply side provides support for production cuts, oil prices are expected to stop falling and rise.
Weakened demand phase
In addition to the downward shift of the cost side, the negative feedback of the terminal demand also puts great pressure on the price of PTA. Judging from the demand performance this year, the performance from January to mid-March is better. On the one hand, there are indeed domestic sales orders, and on the other hand, more demand comes from the replenishment demand at the end of last year. However, after entering the second half of March, the demand began to decline significantly. The start-up of the weaving link continued to drop to about 62%, and the start-up of the texturing link dropped to a minimum of 65%. Negative demand feedback is gradually transmitted to the polyester segment. The polyester segment had little inventory pressure before. However, under the continued weakening of the terminal, polyester began to accumulate inventory, coupled with falling prices, the risk of inventory depreciation increased, and polyester factories began to continuously reduce production. As of April 27, the comprehensive start of polyester production has dropped to 85.9%, and it is expected to drop to about 83% after the "May 1st" holiday. Under the reduction of polyester production, the demand for PTA declined in April. However, from the perspective of the whole year, the overall demand will show a weak recovery. The decline in short-term demand is mainly based on the pressure of cash flow and inventory depreciation, coupled with the impact of the "May 1st" holiday, companies are more willing to stop work.
There is not much pressure on the spot
PTA’s recent demand has negative feedback, but its own supply is relatively high. In April, the average operating rate of PTA was around 80%, which was at a high level in the past year. From the perspective of marginal changes in supply and demand, PTA has changed from a state of tight supply in March to a balanced supply and demand. However, the current basis of PTA is relatively strong. In the process of price decline, the basis and monthly price difference are still relatively strong. The basis of the 2309 contract before the holiday is about 540 yuan/ton. This means that the price drop in this wave is more of a downward repair for the overvalued PTA. Although the fundamentals of PTA are marginally weaker, the relative pressure on the spot side is still not great, the inventory level is neutral, and the warehouse receipts are low.
Based on the above analysis, the recent price drop of PTA is mainly caused by the crude oil on the cost side and the demand side. However, the current oil price has entered the undervalued range, and attention should be paid to its supply-side support, and it is expected to stop falling in the later period. In addition, the negative feedback of demand is expected to come to an end, and we will pay attention to when the polyester load will stabilize and rebound in the later stage. The actual inventory pressure of PTA is not big, and the basis difference is relatively strong. The author is not pessimistic about the futures price.
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