Recently, market participants said that due to the dual impact of China's large number of new production capacity and the uncertain demand outlook in the second half of the year, the prospects for the Asian purified terephthalic acid (PTA) market are worrying. Under the influence of the new wave of COVID-19 in Asia, especially India, coupled with the global logistics challenges caused by the shortage of containers, the prospects for the PTA market in the second half of this year are still uncertain. Nevertheless, some market participants still pin their hopes on China's possible rationalization of the production capacity of PTA devices and large-scale vaccination on a global scale. This may create some price support in the second half of the year.
PTA production margins are dragged down
China added 4.9 million tons of PTA production capacity per year in the first quarter and 7.2 million tons in 2020. In the second half of this year, China is expected to put 6.6 million tons of new PTA capacity into production. According to market participants, this intensive capacity expansion has caused China's PTA profit margin to fall into a negative region at the end of 2020. It has been at a loss in the first half of this year and may continue to lose money.
According to data from Platts Energy Information, from January 1 to May 12 this year, the average price difference between the PTA produced in China and the raw material paraxylene (PX) was 335 yuan/ton (approximately US$52/ton), which was lower than the usual price. The break-even level of 500~700 yuan/ton. During the same period, the average price difference between USD-denominated PTA and PX was approximately US$93.66/ton. The price of USD-denominated PTA goods was to a certain extent supported by the tight supply in the international market outside of China at the beginning of the year. Although this price difference is close to the usual break-even level of Asian PTA producers, the expensive raw material cost of acetic acid puts pressure on many producers. 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 upstream trend of PX and crude oil prices.
India's PTA imports will be blocked
Since China became self-sufficient in PTA at the end of 2020 and India became Asia’s largest PTA importer, PTA trade participants have been paying close attention to the needs of the Indian market, which is suffering from the second wave of COVID-19.
In India, the timing of the recovery of demand in the polyester industry chain is unclear, but market participants hope that the situation of the new crown pneumonia epidemic in India will improve around mid-June. However, sources said that even if Indian states adopt strict blockade measures to significantly reduce the number of new crown pneumonia infections, the normalization of Indian trade activities and the recovery of demand can only occur in the second half of the year. The new wave of the epidemic in India has disrupted the supply chain and manpower supply. Even if the manufacturing industry is allowed to operate during the blockade, it may take some time for India to get back on track.
Sources said that once demand recovers in the second half of the year, India's domestic PTA supply will tend to be tight. This may lead to domestic import demand in India, but the shortage of containers and high freight rates may inhibit this import demand.
Trends in the Chinese market are critical
The two Asian PTA producers stated that apart from the uncertain demand in India, the prospects of the Asian PTA market depend to a large extent on the progress of China's new PTA production capacity, the potential rationalization adjustment of production capacity, and China's PTA export volume in the second half of the year.
PTA trade participants hope that the overall operating rate of China's PTA devices will be lowered, or less competitive devices will be shut down. After this, the PTA industry will be able to cope with large-scale capacity expansion and marginal squeeze. Market participants said that since the end of 2020, due to various reasons, China's PTA production capacity totaling about 4 million tons/year has been closed, and may remain closed in the near future.
China Customs data shows that in February and March this year, China’s PTA exports reached 196592 tons and 338,675 tons respectively, setting record highs in succession, far higher than the monthly average export level of 70,565 tons in 2020.
A PTA manufacturer said that unless there are freight and tax advantages, it will be difficult to compete with competitively priced Chinese PTA goods. In other parts of Asia, South Korean PTA exporters will continue to target the European and Turkish markets and take advantage of the free trade agreements that South Korea has signed with these countries.
