Expected Expansion of Price Spread between PTA and Ethylene Glycol

Although the spot supply of PTA will turn loose after this round of equipment overhaul, the production cost will gradually rise under the influence of rising crude oil prices. Inventories of ethylene glycol in East China continue to rise, and the forward price of ethylene glycol is weaker than PTA when the spot price can cover the production cost. The spread between PTA and Ethylene Glycol 1909 is expected to continue to widen.

The explosion of Xiangshui Industrial Park in Suzhou has a great impact on the dye market. Under the influence of cost pressure, printing and dyeing enterprises began to reduce the purchase of upstream grey cloth. According to the data of grey cloth inventory of sample enterprises in Shengze area, the progress of grey cloth inventory of degraded grey cloth began to slow down at the beginning of March. The stock of grey cloth has risen from the recent low of 34 days to 35.5 days, and has not entered the rapid degrading stage as in the same period over the years. With the passage of time, the impact of the incident on the textile and chemical fibre industry has been conducting upward and downstream, and the production peak in September this year is expected to be significantly affected. The demand for PTA and ethylene glycol will continue to weaken in the second and third quarters.

Late March to mid-April is the first round of PTA equipment centralized maintenance time of this year. At the same time, under the condition of low inventory, PTA manufacturer’s intention to exert influence on market price by adjusting equipment maintenance gradually appears.

Recently, PTA social inventory began to flatten. According to the latest data, PTA social inventory is 2.5 days, at a normal level. With the end of the centralized overhaul period, the stock boost to PTA prices will gradually weaken. Relatively speaking, the inventory scale of ethylene glycol has been rising since it entered the storage phase in September, 2018. The latest inventory in East China has reached 1.16 million tons. Assuming that the output of polyester is 50 million tons in 2019, the corresponding consumption of ethylene glycol is 16.75 million tons. According to the degrading rate in 2014, it takes nearly three months for inventory to be degraded. Taking into account the current apparent consumption of 15 million tons per year, the process of ethylene glycol inventory degrading will be very long, and inventory pressure is much higher than PTA. Recently, crude oil prices have risen sharply, WTI has stabilized at $64 and Brent has broken through $70, which has significantly boosted the cost of chemical products. The price difference between crude oil and PX has continued to fall from the high level since the beginning of March, but with the weakening of PX price in March, the price difference between PX and PTA oscillates upwards, which is higher than the same period. Recent PTA processing fees have fallen. In the long run, it is expected that PTA profits will continue to transfer to PX, and the cost support for PTA prices will gradually increase. Although the loose spot supply will put pressure on PTA price after the maintenance period is over, the reduction of processing fee will gradually increase the support of cost to PTA price.

In the aspect of ethylene glycol, the price difference is not the same under each process. But overall, the profits of oil and gas ethylene glycol manufacturers are very thin. The price difference of naphtha route has approached zero axis, the price difference of ethylene route has remained near – 1100 yuan / ton, and the price difference of MTO route has weakened to – 1000 yuan / ton. In contrast, the full cost of coal-to-ethylene glycol is still lower than the spot price. According to the annual report data of listed companies producing ethylene glycol in 2017, the total cost of coal-based ethylene glycol is estimated to be around 4300 yuan/ton considering depreciation. If depreciation is not considered, the unit cost of coal-based ethylene glycol is even as low as 3500 yuan/ton. Relatively speaking, lower market prices are more conducive to these coal chemical enterprises to occupy the market. Considering the production cost of each route, the price support of ethylene glycol will remain weak in the second and third quarters.

In 2019, downstream polyester industry demand for raw materials is expected to weaken. Considering the trend of PTA and ethylene glycol inventory differentiation and the difference in cost-side support between them, the price gap between PTA and ethylene glycol will continue to widen until September. Technically, the spot price difference between the two is near the average value of nearly ten years, and there is a large space for the spread to expand. The opening of continuous trading makes the trading time of the two varieties coincide highly, which is more conducive to the operation of arbitrage trading. Overall, the profit margin of long PTA and ethylene glycol in 1909 contract is larger.