Downstream Pressure Initial Upstream Production and Landing
At present, with the onset of Hengli PX production capacity, the weakening of PTA cost has become a foregone conclusion. At the same time, with the increase of PTA plant maintenance and the recovery of downstream polyester demand, PTA is expected to be phased out of stock. From the current market point of view, the supply of tight long logic and cost-side weakening short logic is still in the game. At the seminar on PTA industry chain Market Analysis in the second quarter of 2019, sponsored by Futures Daily in Hangzhou and supported by Zheng Shang Suo, the “big cafe” of various related industries analyzed the trend of PTA aftermarket from the specific situation of upstream and downstream.
Downstream Polyester Pressure is Initial
“The consumption of downstream polyester has a great impact on PTA supply and demand this year. The current supply is a “clear card”, but the growth rate of demand is not clear, it has a very big impact on PTA supply and demand this year is tight or loose. Wang Guangqian, research director of Ningbo Hengyi Industrial Co., Ltd., said at the meeting that from the point of view of the textile ecological chain, the pressure of excess warp knitting supply has begun to emerge.
In fact, according to Futures Daily reporters, China’s textile industry has a high degree of export-oriented in the past few years, with a large proportion of exports. However, in the past two years, the proportion of demand has increased significantly, and the proportion of exports has gradually decreased. Among them, domestic demand mainly includes three parts: textile and clothing, home textiles and infrastructure.
“Clothing accounts for the largest proportion of domestic demand. At present, with the end of the clothing replenishment cycle, it means that the growth rate of demand for raw materials will decline steadily. Wang Guangqian said that before 2016, the apparel industry was in the stage of de-inventory. We can see that the number of physical stores of apparel enterprises has been decreasing. Since the Hangzhou G20 Summit in 2016, garment demand has increased again, and the replenishment of the storehouse in 2016-2018 has stimulated the growth of polyester consumption. Clothing replenishment cycle is about 2 years. With the end of clothing replenishment cycle, the pulling effect on polyester raw material consumption is weakened.
Home textiles are closely related to real estate. Wang Guangqian said that with the end of the super boom cycle of real estate, the growth rate of demand for raw materials for home textiles will decline substantially. “Since 2015, this super real estate cycle (improvement + speculation + hardcover) is the main force driving the outbreak of home textile market demand. However, the real estate cycle has ended in the third quarter of 2018. The demand for real estate home textiles tends to weaken after replenishing the warehouse in the third quarter of last year. Warp knitting machines are the first to feel chill. The demand for real estate home textiles in 2019 will obviously slow down, and the demand for warp knitting will be difficult to improve. This means that the growth rate of demand for raw materials for home textiles will be greatly reduced. He said.
In fact, the pressure on the weaving sector brought about by the slowdown of terminal demand will first be reflected in the production profit, and then be transmitted to its own supply and the demand for raw materials. “At present, the profits of weaving and elasticity have been damaged, and the later stage will be the transition to the contraction of the supply side. In addition, it will also affect the enthusiasm of raw material stockpiling. Wang Guangqian said at the meeting.
On the export side, Wang Guangqian said that the growth rate of textile and apparel exports in the future is expected to remain low (negative growth). After the gradual easing of Sino-US trade frictions at the end of November last year, American apparel wholesalers made use of the rare time window period to replenish their stocks. As a result, the inventory-sales ratio of American apparel wholesalers rose sharply from December last year to January this year. Domestic orders were released sharply in early January, and the end weaving was in the process of catching up with orders throughout the first quarter. The consumption level of polyester raw materials was at a high level. After the polyester festival, the construction began at a high level, and the obvious inventory pressure was still not felt. Inventory transfer from polyester to weaving, and polyester inventory pressure transfer to terminal. “In view of the disappearance of the effect of centralized export rush in the first quarter, it is expected that the export data in the second quarter will be rather bleak, or maintain a low speed or even negative growth, and textile and garment exports throughout the year will be difficult to say optimistic.” Wang Guangqian said.
“With the slowdown of terminal demand, it is expected that the new capacity of polyester production will also slow down in 2019.” Wang Guangqian said that in the first quarter of this year, the growth rate of polyester production was around 9%, which implied a large overdraft of future demand. In his view, polyester demand will not sustain this growth rate in 2019. “It is estimated that China’s polyester production will reach 48.8 million tons in 2019, with a growth rate of about 7 percent.”
“If we estimate that PTA production will increase by 3.2 million tons and polyester production will increase by 9% in 2019, September will be quickly depotted and there will be a greater risk. If estimated by 7% growth rate of polyester production and 3.2 million tons of PTA increment, the supply-demand balance sheet will maintain a relatively tight balance and accumulate again in the fourth quarter. There will be no obvious gap between supply and demand as a whole, but there will be about 1.2 million tons of end-of-term inventory by the end of the year. Wang Guangqian said that from the point of view of demand, PTA supply and demand this year may be far less tense than you think.
The change of PTA industrial chain pattern will lead to profit redistribution
Since 2019, with the production and landing of Hengli and other enterprises, PX supply has introduced new forces, and the original supply pattern of PX will change. “ACP vendors and Suppliers account for about 30% of Asia’s production capacity and more than 50% of the negotiable trade volume. They have a strong voice in the price of PX. PX producers in mainland China are highly concentrated, with only seven suppliers, and the top five Suppliers account for more than 80%. With the production of Hengli and Zhejiang Petrochemical PX, the original supplier-led PX trade market pattern will be impacted. Qin Hao, PTA sales manager of Fuzhou Chemical Trade (Zhangzhou) Co., Ltd., said at the meeting that PX in Japan, Korea and other countries has a high dependence on the Chinese market and will face the impact of the replacement of PX localization in the future, while the newly built integrated devices in China have obvious advantages in production and operation costs, consumer markets and channels.
“PTA as a downstream product of PX, PTA production capacity in the last three years has almost maintained a stable level, almost no new capacity introduced, but there will be some changes in production. Although the industry is in a capacity-free cycle from 2015 to 2017, during this period, due to the slow downstream driving, output has maintained a steady growth level. Qin Hao said that the total effective capacity of PTA according to CCF statistics is 45.78 million tons. Yisheng, Hengli and Fuhua account for more than half of the total capacity. The growth of PTA supply in the next two years is basically based on the expansion of the original suppliers, and some downstream enterprises are mainly extended upward, the concentration of the whole industry will be improved.
Qin Hao said that in the next two years, Hengli, Xinfengming, Baihong and Yisheng will be decided to put into operation, so the expansion is mainly based on the internal expansion of the industrial chain. “After this round of expansion, the vertical integration of the whole industrial chain deepens, many enterprises have a more vertical and perfect supply system from upstream to downstream, which will lead to the production capacity of PX, PTA and polyester eventually become a mutual supply system within an enterprise or a group, and the cash flow to the market will be reduced, which will weaken the liquidity of some spot in a disguised way.” Qin Hao said.
In addition, the volatility of commodity prices will also decline. “Because after vertical integration, these enterprises have good means and tools to adjust and distribute profits. If there is excess profit in one link, these enterprises will use the tools they have to adjust and distribute profits among industries. Qin Hao said at the meeting.
It is understood that PX project has a long construction cycle, a large investment scale and a high access threshold; polyester fiber project has a shorter investment construction cycle, a smaller investment scale and a better profit, polyester new capacity can reach production faster. The characteristics of industrial investment determine that there will be mismatches during the adjustment of supply and demand in the industrial chain, which will lead to uneven profits. In fact, in the PX-PTA-polyester industry chain, profit distribution is closely related to the supply and demand pattern of each link and the upstream and downstream game of the industry chain.
“In the situation of shortage of supply, PX has considerable profits, enjoys the mismatched dividend of production capacity, PX sellers have the pricing power, PTA profits are always on the profit and loss line, and the factor restricting PX price upward is that the downstream tolerance of raw material cost reaches the limit level. Since September 2018, PTA industry has improved in terms of supply and demand, PTA profits have moved as a whole, PX seized the opportunity to occupy profit space, and profit space has increased. Qin Hao said that based on the deduction results of the profit background in 2018, the situation of PTA de-inventory in 2019 is difficult to reverse, and the corresponding profit level should gradually rise. Under the background of low inventory, PTA manufacturers have strong bargaining power, grasp the initiative of profit distribution in the industrial chain, and most of the profits brought by cost collapse should fall in the PTA factory link. The same profit background deduces that in the second half of 2020, when the monthly output of PTA new devices reaches more than 400,000 tons, profits will begin to decline.
In view of the future investment opportunities of PTA, Shen Ye, senior analyst of Yongan Futures PTA, said at the meeting that although the absolute price is difficult to speculate, there are more relative price opportunities. “Overall, PTA is in the upstream and downstream capacity expansion cycle, so industry profits are expected to expand, looking forward to this year’s processing fees; monthly PTA industry attributes and contract design particularity, the superimposition of its industry environment, set as a probability event; and absolute prices, after a sharp fall in 2018, speculative demand or weakening in 2019, but due to convergence Ester and weaving are still in the capacity expansion cycle, and the replenishment cycle has not yet ended, so there is still a pulse market stage. He said.