What Will Recur During PX Expansion Cycle

Date:Nov 14, 2019

PX capacity expands rapidly and the profit reduces drastically in 2019. There will be more fresh capacity to come on stream in China, therefore, participants are concerned about the outlook of PX market. Let’s first have a review on PX market.

From the chart above, we can see that after two expansion cycles in 2008-2009 and 2011-2014, PX capacity has entered the third peak expansion cycle starting from 2019. If we make a comparison, we can find that the new round of capacity expansion is quite similar to that in 2008-2010, in that PX capacity grows significantly, while the growth of polyester and PTA capacity lags behind. In 2011-2014, however, the growth of PTA capacity is the fastest, shown in the chart below.

Apart from that, the similarity is also reflected in the competitiveness of the new PX plants.

Total new PX capacity increase in China1.8 mln mt/yr10.4 mln mt/yr
Capacity growth rate63%71%
Capacity of a single new plant0.6-0.8 mln mt/yr0.6-4.5 mln mt/yr
Ratio of plants with capacity no less than 0.6 mln mt/yr in global total in the previous year20%79%

The last line in the figure above shows the competitiveness of new PX plants in China. In 2009, the capacity of a single new plant was at or above 0.6 mln mt/yr, while plants with PX capacity no less than 0.6 mln mt/yr took merely 20% of global total in 2018, which means that new PX plants in China in 2009 had advantage in terms of cost.

In 2019, the smallest PX capacity of a new single plant is 0.6 mln mt/yr, and its competitiveness is not strong in the world as plants with PX capacity no less than 0.6 mln mt/yr have already taken 79% of global total in 2018. However, there are new large-sized ones such as Hengli Petrochemical’s 4.5 mln mt/mt units and Zhejiang Petroleum and Chemical’s 4 mln mt/yr units, coming on line with obvious competitiveness.

Let’s make a comparison between the dependence on imports in 2009 and 2019.

After the expansion in 2019, China’s PX dependence on imports dropped from 55% in 2018 to 46% in 2019 and then further to 37% in 2010. Coincidentally, the dependence on imports stood at 59% in 2018, and is expected to fall to 50% in 2019 and further to 36% in 2020.

In 2009, PX-naphtha and PX-MX spread narrowed from May to Oct. PX-naphtha spread slid from $780/mt in May to less than $240/mt in the beginning of Oct 2009, down a whopping 70%. PX-MX spread shed 80%, from $480/mt to less than $100/mt over the same period. In 2010, the spread continued falling with PX-naphtha and PX-MX spread down to as low as $205/mt and $52/mt, respectively. The spread hovered low and did not rebounded until Aug 2010.

In 2019, PX-MX spread declined to $75/mt in Sep, new low in a decade. PX-naphtha spread recorded its low at around $274/mt in Oct, still above the lowest point of $228/mt in Jul 2010.

Given the similar situation in 2009 and 2019, PX processing spread could retouch and even refresh the new low since 2010. However, as PTA capacity expansion is also in the peak cycle, PX processing spread could rebound in some periods. In the longer run, it is inevitable that China’s self-sufficiency of PX will enhance and global PX industry will confront with new competition and elimination.