Fundamentals Are Good, PTA Price Steadily Increasing

The present price of PTA has reached the high point of Nov, 2010, which made we consider that the tendency of PTA price is very steady and will increase in the mid-term.

The increasing tendency of crude oil has been confirmed

Stimulated by the gentle economy data and prospected demand structure for good, the present light crude oil’s contract price of March has increased to 90 dollars/drum in New York; and Brent crude oil is closed to 100 dollars/drum. On Jan, 11, according to EIA Short-term Resource Prospect Report, the average increment of global oil’s daily consumption will reach to 1.4 million to 1.5 million drums in 2011 and 2012, but the supply amount will not increase obviously. EIA also predicted that the daily production of the non-OPEC member countries would only increase 160 thousand drums in 2011 and there would be only 20 thousand drums in 2010. The supply-demand gap will still be filled by increasing the production by OPEC, while the daily increment will be 0.5 million drums and 1.1 million drums separately of the next two years. From these data, the consumption increase is obviously bigger than supply increase of the next two years, so the crude oil market will stay in a stock digesting period.

The recent U.S. crude oil’s weekly stock report verified the EIA prospect report. U.S. crude oil’s stock has dropped down over 24 million drums for the past five weeks and the high-stock situation is improving. Stimulated by various beneficial factors, the recent investments are obviously given more in the crude oil. According to CFTC report, non-commercial long position is closed to 170 thousand hands which doubled the short position. We agree that as long as the macro-economy does not intervene into the crude oil’s price, the increasing basic will not change; and the firm price of the crude oil will supply a loose environment for the PTA price to increase.

The increasing PTA price after the New Year is mainly pushed by the PX price.

Insufficient PX new capacity as well as the devices’ maintenance both led to the sharp increase of the PX price at the beginning of 2011. Both the PX and PTA benefits surpassed 1, 000 Yuan/ton unprecedentedly. The present increasing of PTA price is mainly pushed by the PX price directly. Ended by Jan, 21, Asian PX price was closed at 1, 633 dollars/ton FOB Korea, which is closed to the high point, 1, 685 dollars/ton in 2008. If we convert the present PX price into the theoretical producing cost of PTA, it will be around 9,600 Yuan/ton and the profit of the PTA manufacturers will not over 1, 100 Yuan/ton, which is at a low level of the year. Because of the strong position of the PTA manufacturers in the industry chain, and under the circumstance of the profit being suppressing, the manufacturers will have the ability to increase the price in order to transfer the cost to the downstream to guarantee a stable producing profit. This is reason why we consider that the present PTA price is mainly pushed by the increasing PX price.

Productive and speculative demand dominates the PTA price

What the market concerns now is the pattern change of the PTA industry in the first half year of 2011. From the last season of 2010 to the first half year of this year, it is predicted that over 3.45 million polyester capacities have been put into producing. If we say one ton polyester need to consume 0.865 ton PTA, so this part of added capacities need 3 million ton PTA, while only 1.5 million ton PTA have been put into producing. Under severe scissors differential, it is normally considered that the PTA supply of first half year is tend to be short; under favorable prediction, the stock-up period has been pushed forward, and some after-year plans has been brought to the beginning of the year. The present motive power of PTA demand is mainly the productive and speculative demand, and the terminal consumption has been obviously suppressed in the dull season of textiles. The transaction of the domestic polyester yarn market is a little flat. The manufacturers and the traders give priority to being steady, and stress on steaming capitals again. The operation rate of the downstream weaving factory is sliding and their demand for the polyester yarn falling further. Although the market quotation of the polyester yarn is firm, the transaction is weak. This situation can also be concluded from the profit of the polyester products. The present price of PTA spot goods is 10, 700 Yuan/ton and the inner market price of MEG is 9, 200 Yuan/ton. If analyzed from the raw material’s cost, the theoretical price of staple fiber is around 13, 400 Yuan/ton while the present price is 13, 800 Yuan/ton. The profit space is small. The fierce PTA market situation did not transmit to the downstream, and the present market is supported by the expectation more. Although the textile market is a little weak at present, the traders think highly of the spring and have enlarged the stocking, so they make this dull season not so dull.

High-price cotton establishes the strong position of PTA in the mid-term

The cotton market is always running at a high level since last December’s rebound, which is different from the October’s crazy increasing situation. The present cotton price has been digested by the industry chain. The price interval, 27, 000-30, 000 Yuan/ton has been widely accepted by the market. Its basic is more stable than it in October, so the possibility of price decreasing is slight. Because of the high-price cotton, the replaceable effect of the polyester products is obviously strengthened, which indirectly pulls the PTA consumption. The relativity between the PTA and cotton is obviously enlarged. In the next half year of 2010, the related coefficient jumped highly to 0.92. Now the price ratio of the cotton to the PTA reached 2.7 and its price ratio to polyester staple fiber is over 2.0. Both of the numerical value is at a historical high level. From this point of view, it still stays at a period that is digesting the price ratio of cotton and polyester; the pulling effect of the cotton price for the PTA price does not completely show up; and there is still space for PTA’s price to increase.

Conclusion

We agree that, the present pulling effect from the crude oil is limited. In contrast, the increasing range of the crude oil price is great and its impact for the PTA price should not be exaggerated. Since this year, the PTA price is mainly pushing by the sharp increase of PX and the short-term PTA price depends on how the PX price is going to develop. At present, the terminal consumption is not vigorous enough, and the PTA demand is mainly from the productive and speculative demand. Under favorable predictions, the PTA price will grow up before the textiles’ busy season coming. However, the bull market in the slack season does not have a stable basic, if the manufacturers’ stocking enthusiasm did not continue afterwards; there might be a series of regulating movements before the year. We still think highly of the PTA price in the mid-term, the reason is that the T/C products’ replaceable effect is working. When the busy season comes, the effect will become more obvious. Under high-price cotton, PTA price still has space to go strong.