PX and Downstream Profitability Slowed Down in 2022
In the past five years, the profit of China’s PX gained first and then dented. In 2018, most of the profit of the industrial chain was concentrated in the PX market. While in 2019, with the intensive production of PTA units which are integrated with upstream units, downstream buyers’ bargaining power increased. The cash flow began to transmit to downstream links, so the profitability of PTA and even polyester industries was improved.
MX is the direct upstream feedstock for PX production in both integrated and non-integrated units. It takes 1-1.05mt of MX to produce 1mt of PX, so the price change of MX has a significant impact on the cost of PX. Because of the direct upstream and downstream relationship between the two, the correlation coefficient of the two is more than 0.9, and their prices always rise and fall synchronously. In 2022, driven by the tight supply of MX caused by the increased demand for oil blending in the year, the price spread between PX and MX continued to narrow, and the loss of PX industry became a norm.
According to the PX profit model, the average profit of isomerization process in 2022 was $-38.35/mt, down 20.26% Y-O-Y and down $48.35/mt from the end of 2021. The highest profit occurred in December at $33/mt, and the lowest value appeared in October at $-142/mt, which was also the lowest value in the past five years. Most of the year's cash flow was in a loss state. Due to the further improvement of China's self-sufficiency rate and the deepening of the “refining - chemical – polyester” industrial chain development model, PX buyers' voice increased and PX profits were significantly compressed. In June and July, MX inventory at home and abroad was at a low level for a long period, and it coincided with the peak travel season in the United States. The demand for oil blending was strong, so the feedstock MX price was significantly increased, while the rise in PX price was insufficient, which led to shrinking PX profits. Domestic and foreign PX producers that purchased MX from the market faced sharply increasing pressure, and some production lines were strategically halted.
The price trend of PX and PTA in 2018-2022 was basically the same, mainly following the trend of crude oil price, and the PTA market was stronger than PX in 2018-2019, mainly due to the limited capacity expansion of PTA at this stage and the tight balance between supply and demand. In the first half of 2022, especially in the second quarter, PX market was stronger than PTA, mainly due to the decline of PX domestic production and low import volume.
In 2022, the average annual processing cost of PTA was RMB 480/mt, with the highest value in September at RMB 1,065/mt, and the lowest value in March at RMB -77/mt. The spread between the highest and the lowest prices was RMB 1,142/mt. The main reason for the decline of PTA processing fee in the whole year is that PTA capacity continues to expand, and the negative correlation between supply and processing fee is conducive to the decline of PTA processing fee. In 2022, the PTA processing fee was negative for the first time in the history, and the two negative values occurred in March and June respectively, mainly because the price of feedstock PX was much higher than that of PTA in the short term. In March, the price of crude oil once hit the highest point since 2008, pushing up the price of PX and squeezing the PTA processing fee. In June, the number of MX exported from South Korea to the United States increased, which affected the supply of PX. The rise of PX price squeezed the PTA processing fee again. In September, the PTA processing cost rose to the highest point in the year, mainly due to the shortage of PTA. The narrowing of the PX-MX price difference led to the reduction of domestic PX output, and the supply of imported PX was also limited, resulting in the monthly output loss of PTA from August to September at a historical high.
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