Will PTA shutdowns ease oversupply concerns in China?

A round of PTA (purified terephthalic acid) plant shutdowns was recently reported by players in China amidst oversupply concerns and poor production margins of the feedstock, as per ChemOrbis. Indeed, upstream PTA and PX markets as well as downstream PET players have been experiencing excess supplies due to brand new capacities and muted activity. PET prices in the country edged down last week amidst volatile upstream costs and disappointing demand despite the nearing high season. Now, players are questioning whether these PTA shutdowns will ease the downwards pressure on upstream and downstream prices or not. A Shanghai-based trader from the downstream PET market stated, “Operating rates above 75% on the part of domestic producers already caused oversupply. Recently, most PTA lines are running at even above 80% while there are new PTA and PX capacities on the way. The only way to control the oversupply situation is to stop the production of PTA.” China’s Yisheng Petrochemical reportedly shut their PTA plant located in Hainan this week given technical problems. Repairs at the massive 2.2 mln tpa plant were expected to last for around 10 days. Hengli Petrochemical will also bring down their 2.2 mln tpa PTA plant in Dalian at the beginning of June for around two weeks. The company blamed negative production margins on PTA as the reason behind their decision. Additionally, Xianglu Petrochemical planned to shut their PTA testing line given some technical issues during the past weekend. The new plant in Zhangzhou, Fujian has a production capacity of 1.5 mln tpa. Meanwhile, the company was to implement a one month long maintenance at the site, according to some market sources. Apart from Chinese PTA makers, Japan’s Mitsubishi Chemical scheduled a shutdown at their 600,000 tpa PTA plant located in Ningbo, China in the near term, market sources said, although the date for the beginning of the shutdown and the duration are undisclosed. Looking ahead, Chinese Tongkun postponed the start-up of their brand new PTA plant in Zhapu, Zhejiang this week. The company initially planned to bring their 1.5 mln tpa plant online in 2016 while the date has been delayed to early 2017. The company cited poor margins in PTA production as the reason for their decision. Looking at PTA costs, spot prices increased over US$20/ton on CFR China basis week over week. The latest figures indicated a US$10/ton gain with respect to the beginning of May. Players in the downstream PET market are evaluating the possible effects of reduced PTA output. Many players believe that these shutdowns will provide only temporary relief to the market’s persistent oversupply issues, while some sellers already tried to adjust their PET prices up with support from firmer feedstock costs this week. A Chinese PET producer expressed their concern, “There are approaching PX turnarounds which may affect the market during July. At the same time, there are resuming PTA plants which were in turnaround previously. Hence, PTA prices might remain weak in the near term bringing downward pressure to PET prices.” Another PET producer noted, “We are concerned about PTA oversupply as this may have a heavy impact on prices. We will monitor PTA in order to adjust our pricing if required. We are not pessimistic for the near term outlook though.” On the other hand, a different producer lifted their PET prices by US$10/ton this week citing firmer PTA and PX costs. According to ChemOrbis, a PET trader expects to see a relatively stable trend for the remaining part of May with some upwards adjustments being possible. However, he expects prices to soften in June given the pressure from oversupply.