The oil market experienced a modest downturn this month, influenced by recurring tensions in the Middle East and the unwinding of geopolitical risk premiums. In contrast, the PX market showed relative resilience, supported by a steady decline in domestic supply and a slower-than-expected recovery in other Asian regions. The downstream PTA sector, however, struggled under pressure from weak polyester demand. The monthly average price of PX was primarily driven by costs, resulting in a relatively stable ratio against Brent crude oil. This month, planned PX plant shutdowns were implemented, pushing domestic operating rates to historic lows and significantly reducing overall supply. Meanwhile, MX exhibited a stronger fundamental position compared to PX, suffering smaller price declines. This has kept profitability for short-process configurations under persistent compression. This article will analyze the performance of the upstream and downstream segments of the chain, highlighting key data points.
Crude Oil Weakens, PX Shows Resilience, While Downstream Remains Lackluster
Crude Oil Under Pressure, PX Declines but Holds Up Better
In July, the average price of US crude oil was $78.43 per barrel, down 4.11% from the previous month but up 16.64% year-on-year. The average price of Brent crude oil was $83.08 per barrel, down 1.6% from the previous month and up 19.45% year-on-year. Oil prices followed a pattern of initially climbing higher before retreating modestly, with significant volatility. The main trading range for WTI was $68 to $93 per barrel. Iran attacked oil tankers failing to follow regulations to maintain shipping safety in the Strait of Hormuz. Subsequently, the US launched military operations, striking Iranian military facilities for several consecutive days. Iran retaliated, and peace talks broke down. Following renewed military strikes, the Strait was closed, and the US imposed a blockade on Iranian oil exports, causing oil prices to rise. However, President Trump later halted the full-scale expansion of military operations. After a temporary ceasefire, peace talks gradually resumed, and oil prices retreated from their highs.
In July, the Asian PX market bottomed out and climbed, influenced by costs and supply. The monthly average CFR China PX price was $1,051.0 per ton, down 2.83% from the previous month's average. The FOB Korea average was $1,031.0 per ton, down 2.88% from the previous month. In early July, the situation between the US and Iran escalated, the Strait of Hormuz was closed again, and international oil prices surged. A total of 14.1 million tons of PX capacity in China was under maintenance, while the supply recovery in other parts of Asia was gradual. On the demand side, PTA showed signs of gradual recovery. Driven by cost support and improved supply-demand dynamics, PX discussions rebounded from lows in early July, with a single-day increase of up to $61 per ton. As geopolitical risk premiums faded, prices entered a phase of gradual increase. Towards the end of the month, heightened geopolitical tensions, the re-emergence of the Red Sea crisis, and expanding supply disruptions prompted a strong rally in the oil market. This boosted bullish sentiment, leading PX prices to regain upward momentum and break through the $1,130 per ton mark.
PTA Operating Rates Hit Fresh Lows, but Weakness Persists Amid Stagnant Polyester Demand
PTA prices followed an "И"-shaped trajectory in July, with the monthly average declining. This was primarily due to the lower monthly average crude oil price and weak demand for PTA. Geopolitical tensions eased temporarily, and at the beginning of July, oil prices were near levels seen before the conflict. The lower oil prices in the first half of the month weighed on the monthly average, reducing costs and negatively impacting the PTA market. The operating rate of downstream polyester units was about 10 percentage points lower than the same period last year. Textile mills operated at low rates, with low finished product and raw material inventories. The lack of confidence in speculative stockpiling led to negative feedback from downstream, making it difficult to raise polyester operating rates. Polyester plants were reluctant to purchase PTA spot cargoes. Although PTA inventories were drawn down this month, the spot market was not tight. Trading in the second half of the month focused on expectations for restarting PTA units in August, causing the PTA spot basis to initially rise and then fall.
In July, the average monthly PTA capacity utilization rate was 57.67%, a decrease of 8.40 percentage points. Estimated domestic PTA production was 5.07 million tons, down 530,000 tons from the previous month. During the month, annual maintenance was carried out at some units in Shandong and Jiangsu provinces, causing the daily PTA capacity utilization rate to hit a decade-low at one point.
Significant Drop in PX Operating Rates, but Profit Margins Remain Compressed
Domestic PX operating rates remained low in July, with the PX operating rate at 58.23%, a decrease of 13.27 percentage points from the previous month. Profitability for isomerization process PX declined significantly. The average monthly PX profit was $8 per ton, a decrease of $28 per ton from the previous month. The weak and volatile oil market led to significant fluctuations in the costs of MX and PX, with varying degrees of pass-through. MX prices held up relatively well due to recovering demand. In contrast, PX faced increased pressure as downstream PTA demand fell to its lowest level in nearly 40 months, resulting in compressed profit margins. Profit levels fluctuated widely during the month and even entered loss territory at one point.
In July, costs across the PX and downstream chain fell, with the bulk of cash flow concentrated in the feedstock segment. Looking at the chain's profitability, both PX and PTA experienced varying degrees of margin compression. On the PX side, despite declining supply, demand also slowed down. Concerns about future market sentiment squeezed profit margins. The PTA side also saw a significant decline, mainly due to domestic polyester operating rates being nearly 10 percentage points lower than the same period last year, leading to ample spot supply and weak prices. Compared to the same period last year, both PX and PTA profitability showed varying degrees of improvement.
Comments