Asian PTA margins narrow as polyester plants cut rates; demand optimism lingers

Chinese PTA producers are grappling with weak margins, as polyester plants' operating rates have started to ease ahead of the Lunar New Year holidays, with limited scope for a revival in the near term, sources said.

At the Asian close Jan. 23, the spread between PTA domestic China ex-tank and paraxylene East China Domestic marker was assessed at Yuan 333.41/mt, down from the month-to-date high of Yuan 415.97/mt Jan. 5, data from S&P Global Commodity Insights showed.

The decline comes following a brief respite in the last couple of months, as polyester plants cut operating rates ahead of long holidays, sources said.

The weeklong holiday starts on Feb. 10.

For a profitable production, PTA producers need a spread ranging from Yuan 300/mt to above Yuan 700/mt, Chinese brokers reckoned.

"If polyester production rate is not so high, they cannot support growth of PTA markets," a Chinese PX producer said.

In the week to Jan. 19, polyester plant operating rates in China were at around 88.9%, down from 90.4% in the week to Jan. 12, sources said.

However, the operational slowdown is seasonal and a rebound is expected after the festival -- allowing producers to prepare for the peak polyester season, a PTA producer in North Asia said.

"We heard polyester makers may run higher in February," he added.

Weak China economy, strong futures

Worries about the Chinese economic recovery continued to weigh on sentiment, even though it has had little impact on the petrochemicals futures market currently, the Chinese PX producer added.

"We [are] also very confused about the PTA [futures] price. Not only confused about PTA prices but also other commodities like MEG and SM [styrene monomer]," the producer said.

PTA futures on the Zhengzhou Commodity Exchange have risen through the week, defying concerns over blunted margins, a trader in Singapore said.

However, some skepticism remained around the strong futures market, the trader added.

Oil prices are firming due to tensions in the Middle East while key waterways such as the Red Sea and Panama Canal could prove to be logistical issues for exports heading out from China, the trader noted.

"I feel there's no solid support for these numbers. If polyester run rates will jump up then where will production go? No one has an answer," he said.

PTA capacities seen higher but optimism remains

Meanwhile, new PTA capacities set to come up online in the next few months will worsen supply conditions in China, sources said.

In March, Taiwan's Formosa Chemicals & Fiber Corp. is expected to start its 1.5 million mt/year PTA plant in Ningbo while Sinopec's Yizheng PTA plant with a capacity of 3 million mt/year may also commence operations around then, traders said.

These new capacities will further pressure PTA margins, the Chinese PX producer said.

However, the improved demand for PTA will likely pique buying interest for PX, with prices set to recover ahead of the gasoline blending season in the US, market participants anticipate.

The ongoing demand optimism has already spurred a turnaround in PX prices, which began to edge higher in January, S&P Global data showed.

Platts assessed Asian paraxylene at $1,042.67/mt CFR Taiwan/China Jan. 23, recovering from a month's low of $1,002.33/mt Jan. 11, the data showed.