According to the Commodity Market Analysis System of Business Society, the domestic PTA market in 2023 showed an upward trend of “M” – shaped fluctuations. As of December 31, the average market price in East China was 5930 yuan/ton, an increase of 5.58% from the beginning of the year. It can be roughly divided into four stages:
From January to mid April, PTA continued its upward trend from December of the previous year, with prices gradually rising to the highest point of 6520 yuan/ton for the year. In terms of segmentation, from January to February, the expectation of demand recovery is positive, and all links in the PTA industry chain are steadily rising. Entering March April, the upstream PX domestic and foreign equipment underwent centralized maintenance, and the PX import volume in April reached the lowest level of the year. At the same time, the PTA’s own circulation of goods has gradually tightened, leading to a rapid increase in prices.
From mid April to mid May, it only took a month for PTA to decline by more than 15%. On the one hand, the crude oil center of gravity has fallen, and the speculation in the PX market has cooled down. On the other hand, the fundamentals of PTA have also weakened overall, especially with the recovery of demand for gold, silver, and four falling short of market expectations. Faced with high priced raw materials, terminal weaving and downstream polyester have seen a decrease in production and demand, leading to a decrease in willingness to purchase PTA and a clear bearish market sentiment.
From June to mid September, there was another upward trend, and as the center of gravity of crude oil prices shifted upwards, PX also rebounded to high levels and fluctuated. In addition, the downstream polyester industry has maintained a high operating rate after profit recovery, leading to an increase in demand for PTA.
From mid September to December, crude oil prices plummeted significantly and PX prices fell from high levels, causing the cost side to lose positive support and driving downstream polyester industry chain prices down. During this period, although the PTA market experienced a temporary recovery due to factors such as the strengthening of crude oil and the reduction of PTA main suppliers, the overall adjustment was still mainly weak.
Looking ahead to 2024:
PTA production capacity is still in an overcapacity cycle, increasing pressure on accumulated inventory
By the end of 2023, the total production capacity of PTA reached 80.615 million tons, with a growth rate of 16.4%. In terms of production, the domestic PTA production in 2023 was about 64 million tons, an increase of 9.9 million tons compared to 2022, with a growth rate of 18.3%.
The annual average operating rate is 76.68%, a significant increase from 73.93% in 2022. This is mainly due to the release of downstream polyester production capacity and the high polyester operating rate throughout the year, resulting in a significant increase in domestic demand for PTA. There are still many production capacity investment plans in the PTA industry in 2024, totaling 9.5 million tons. If the production progress is smooth, the total production capacity will reach about 90 million tons, with a growth rate of about 11.8%, and it is still in an excess cycle. In addition, the growth rate of downstream polyester production in 2024 will be slightly lower than that of PTA, so the accumulation pressure of PTA throughout the year will also increase.
PTA exports are expected to become an important channel for digesting domestic overcapacity
In terms of import and export, PTA has a relatively low import dependence, almost zero. In 2023, PTA exports reached a new historical high, with a total annual export volume of 3.5094 million tons, an increase of 1.82% year-on-year. The main reason for the record high export volume of PTA is that there are too many old PTA devices abroad, and the operation of the devices is unstable. However, the continuous production of large PTA devices in China has enhanced the comprehensive competitiveness of PTA enterprises with integrated production capacity support. However, India used to be China’s largest exporter, but due to the restrictions of BIS certification, the growth rate of PTA exports in China has slowed down. But we believe that the PTA export market is expected to become an important channel for digesting domestic overcapacity in the future.
The industry concentration is constantly increasing, and the trend will continue
In recent years, the concentration of PTA industry has been continuously increasing, with the top six enterprises accounting for over 75%. The PTA industry is showing an oligopoly pattern, with production enterprises having increasingly strong pricing power, and the trend will continue in 2024.
Cost support still exists, and the PX market is relatively easy to rise but difficult to fall
In terms of cost, WTI crude oil prices fell by 8.46% and Brent crude oil prices fell by 7.56% in 2023. The changing international situation and expected decrease in demand in 2023 have constrained the market, resulting in ups and downs. The global crude oil supply will continue to shrink in 2024, mainly due to the OPEC+policy of reducing crude oil production continuing until the end of 2024. In terms of demand, boosted by the gradual stabilization of the global economic situation, there is room for sustained amplification of global crude oil demand in 2024. This is mainly due to the stable recovery of the economic situation in the Asian region, but the inflation rate in Europe and America is still high, so the economic situation is still not optimistic. Therefore, it is expected that the average oil price in 2024 may still be slightly higher than in 2023, but the increase will not be too significant.
With the joint assistance of centralized maintenance of domestic and foreign equipment, unexpected demand, and fluctuations in crude oil prices, the domestic PX market price has increased significantly in 2023. The average price at the beginning of the year was 7450 yuan/ton, and the average price at the end of the year was 8600 yuan/ton, with a year-on-year increase of 15.44%. From the perspective of PX’s own supply and demand, it is in a production window period in 2024. Only one set of Yulong Petrochemical’s 3 million ton unit is planned to be put into operation in the second half of the year, but there is still some uncertainty about whether the project can be smoothly put into operation and released. The peak of PX production in 2023 has passed, and the future increase in production capacity is limited. However, the downstream PTA production capacity is still in a continuous expansion pattern, so the temporary gap in PX is still present. The overall pattern preference and supply shortage are the biggest upward drivers for PX in 2024, and prices are also prone to rise but difficult to fall.
The growth rate of downstream polyester will decrease, and it is expected that it will not be able to provide a significant increase in consumption for PTA
The polyester market in 2023 has shown characteristics of high production, high output, high exports, and improved capacity utilization. In 2023, a total of 10.35 million tons of polyester production capacity was added, excluding 1.37 million tons of eliminated production capacity. By the end of the year, the total production capacity reached 79.32 million tons, with a growth rate of 12.3%, which is the highest level in recent years.
In terms of production, the annual operating rate in 2023 was 83.89%, an increase of 4.19% year-on-year. The cumulative production of polyester is expected to be 66.58 million tons, an increase of 8.87 million tons compared to 2022, with a year-on-year growth rate of 15.4%. The growth rate of polyester production is already high, coupled with a significant increase in capacity utilization. This year’s polyester production growth rate is the highest in recent years.
In 2023, there will be a significant amount of actual polyester production capacity, some of which will be delayed in 2022. The record breaking expansion of polyester production in 2023 has had a direct impact on a decrease in polyester product production profits or an increase in production losses. The planned polyester production capacity for 2024 is over 7 million tons. Due to concerns about the profits of some polyester products, it is estimated that the actual production will significantly decrease compared to 2023. Therefore, the growth rate of PTA consumption will significantly decline.
The increase in polyester exports in 2023 is still significant, with an estimated export volume of 10.92 million tons and a net export volume of 10.09 million tons, an increase of 12.1% year-on-year. But compared to last year, there is still a slight decline. Affected by India’s BIS trade certification and other factors, the future import and export situation of polyester in 2024 is still worth paying attention to. The main tone for the recovery of domestic and international demand for terminal textile clothing in 2024
From the perspective of weaving, the operating rate of weaving machines has significantly increased in 2023, at around 64%, a year-on-year increase of 16%. From a seasonal perspective, apart from the periodic negative reduction in April, the overall operating rate of weaving machines this year is around 70%.
From the perspective of terminal consumption of textile and clothing, the overall trend is showing a mild recovery. The annual retail sales of clothing, shoes and hats, and knitted textiles reached 1.4 trillion yuan, a year-on-year increase of 12.9%. The growth rate of domestic clothing and textiles is relatively high. On the one hand, the base was relatively low in the previous year, and on the other hand, there has been significant improvement in the production and operation of domestic enterprises, leading to a gradual recovery of domestic demand.
In terms of exports, the global economy has recovered slowly in 2023 due to the impact of the epidemic, and weak demand in major markets has led to a decrease in orders, resulting in a lack of momentum for the growth of China’s textile and clothing exports. In addition, changes in the geopolitical landscape and fluctuations in the RMB exchange rate have brought heavy pressure to the development of textile and clothing foreign trade. In 2023, China’s cumulative exports of textile and clothing reached 293.64 billion US dollars, a decrease of 8% 1%, including textile exports of $134.50 billion, a decrease of 8.3%, and clothing exports of $159.14 billion, a decrease of 7.8%. In 2024, domestic clothing consumption will remain resilient, and domestic demand may continue to recover. The “the Belt and Road” countries will become a new growth point to drive exports, and textile exports are also expected to bottom out.
Therefore, in summary, there is a positive expectation of domestic and international demand for textile and clothing in China from the perspective of terminal demand. In the first half of the year, the supply and demand of PX on the cost side were tight, and there was strong support. In the second half of the year, we will focus on the production process of new production capacity. Under the pattern of slowdown in polyester production capacity growth and continued pressure on PTA’s own supply side accumulation, it is expected that PTA prices will be better in the first half of 2024 than in the second half, with an overall narrow range of downward fluctuations.
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