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COFCO Futures: PTA high profit no longer weak demand difficult to change

Since the end of April, the main contract of PTA futures in 2009 has stabilized, and the focus has gradually moved up. As of July 3, the main contract of PTA futures 2009 closed at 3670 yuan / ton. In the past two months, the cumulative rebound reached 16.5%. The reason is that OPEC + started to implement the production reduction agreement in May, which led to the rise of WTI crude oil and Brent crude oil, driving most energy and chemical products, but also including the stabilization and recovery of downstream textile and clothing demand brought by the resumption of production at home and abroad.

The epidemic situation continues to affect the downstream demand for textiles and clothing

Affected by the epidemic situation, the resumption time and progress of various industries after the Spring Festival in 2020 are significantly lower than those in previous years, especially the labor-intensive textile and clothing industry. After March, with the continuous improvement of domestic epidemic prevention and control work, and the gradual promotion of orderly resumption measures, the arrival of workers and logistics transportation also improved significantly. At this time, due to the rush of orders around the Spring Festival, the operating load of the textile and clothing industry increased rapidly. As of the middle of March, the operating rate of Jiangsu and Zhejiang looms rose to 69.2%.

However, after the middle of June, with the end of the summer clothing production peak season and the increasingly severe situation of the overseas new crown epidemic situation, the worries about the second round of epidemic situation have become more and more serious. The economic restart of Europe and the United States is facing great resistance, and the domestic and foreign textile and clothing demand is also facing a huge downward pressure again. Most weaving enterprises began to reduce the starting rate by a large margin. The comprehensive starting rate of Jiangsu and Zhejiang looms dropped from 67% at the beginning of June to 60% on July 2. Factories that barely started work in the early stage also started a centralized holiday recently, and the whole market can see holidays and production stops everywhere. The phenomenon of delayed payment for foreign trade orders is increasing, and foreign trade enterprises are under great pressure.

In addition, due to the long closing time of the Spring Festival market in 2020, especially the closure of physical stores, garment enterprises and dealers miss part of the spring clothing market, and the overstock of spring clothing inventory may be transferred to the autumn clothing season to a certain extent, resulting in the peak production season of autumn clothing in 2020 will continue to be weaker than that in previous years. Therefore, in the medium and long term, it is difficult for the downstream clothing demand to reach the previous level in 2020, which has a significant negative impact on the PTA demand in the upstream.

PTA supply pressure is difficult to relieve

With the rapid growth of domestic PTA capacity in recent years, PTA has entered the accumulation cycle of oversupply since the fourth quarter of 2019. Pile up in excess of requirement for novel coronavirus pneumonia in the world, the PTA inventory has been accumulated and the contradiction between oversupply of industry has become increasingly serious.

Since 2020, PTA social circulation inventory has continued to increase significantly, from less than 1.5 million tons before the Spring Festival to nearly 4 million tons at the end of June, which continues to refresh the new inventory level in the past five years. The last PTA inventory level was 2 million tons in 2015, which is only half of the current level. The PTA futures registered Warehouse Receipt Inventory of Zhengzhou Commodity Exchange was less than 30000 in early February It rose to more than 150000 in mid April and climbed to 220100 as of July 3.

Since the Spring Festival in 2020, PTA processing fee profit has been maintained at a high level for a long time, once exceeding 1000 yuan / ton. Although since May, with the price rebound of upstream crude oil and PX, PTA processing fee has dropped, but as of the end of June, there is still about 560 yuan / ton, and most PTA plants can still obtain normal profits. Therefore, in the first half of 2020, the operating rate of PTA plant has been maintained at a high level, reaching 90.95% as of July 2. The average daily output of PTA is higher than the actual demand of PTA corresponding to polyester operating rate for a long time, so it is reasonable for PTA inventory to accumulate continuously and substantially.

In terms of crude oil demand, due to the clustering of cases in many European countries and the suspension or postponement of economic restart plans in more than 20 states of the United States, the pessimistic expectation of a second outbreak of the epidemic is increasing. The more economic activity is restarted, the more people will be infected. Such a situation makes the uncertainty of economic recovery increase, which leads to the fact that crude oil demand is still difficult to be optimistic in the foreseeable future.

Therefore, under the pressure that demand is difficult to recover continuously, the price protection of crude oil can only rely on the reduction of production at the supply side. In the past two months, crude oil and PX prices have rebounded greatly. As of July 3, the U.S. crude oil index closed at $40.73/barrel, up $21.9/barrel, or 124.78%, from its low of $18.12/barrel on April 21. As of July 2, the closing price of PX market in Asia was 519 USD / T FOB Korea, which was more than 80 USD / T, or 18% higher than that in early April. With the rebound of PX price, the cost of PTA has risen, and in the past month, the price ratio of PTA / PX has shown a trend of shock and fall.

Inventory accumulation, demand is difficult to boost, although high profits no longer, but PTA is still difficult to change the weak.

Due to the sluggish downstream demand and the background of PTA and PX's own industrial expansion cycle, polyester inventory is on the rise, PTA inventory is surging, and the inventory level in 2020 is constantly refreshed.

Although the current crude oil, PX price calculation, the current PTA spot price has gradually returned to a relatively neutral and reasonable level. However, if the US, Russia and OPEC + follow-up crude oil production reduction measures can not continue to push up crude oil prices and increase PTA costs, PTA prices will still be difficult to fundamentally reverse the pattern of weak operation.

The price of PTA in the main industrial chain of polyester yarn is unstable, which makes it difficult for our downstream factories to maintain the price. Moreover, the downstream enterprises are also weak. We hope that the economy can recover as soon as possible.