PX: In March, domestic and international PX plants began maintenance shutdowns, and PX supply is expected to decline from its high levels. Additionally, the closure of the Strait of Hormuz due to geopolitical conflicts in the Middle East has significantly increased expectations of raw material shortages for Asian refineries, leading some plants to reduce operating rates as a precaution, potentially increasing PX supply losses. Meanwhile, downstream polyester operating rates are gradually recovering, and the PXN price spread may stop falling and rebound. Although PX itself has a strong supply and demand situation, the impact of the Middle East geopolitical situation on PX costs is more important to watch. PX is expected to likely follow oil prices with a wide range of fluctuations.
PTA: The Middle East geopolitical situation continues to escalate, and with strong PX supply and demand, cost support is relatively strong. Increased supply and weaker-than-expected demand recovery have led to continued inventory accumulation for PTA in March. With the strengthening of PX, PTA fundamentals are under pressure, and PTA processing margins are facing compression, resulting in a weaker basis expectation. In summary, poor PTA fundamentals are leading to compressed profits, but due to strong cost support, PTA prices are expected to mainly fluctuate in line with raw material prices in the short term.
MEG: The average operating rate of MEG in March is expected to drop to below 70%, with imports potentially decreasing significantly due to shipping disruptions, resulting in a substantial overall supply reduction. Meanwhile, demand is gradually recovering, and the MEG supply-demand structure is shifting towards destocking starting in March. The increased costs due to geopolitical conflicts and reduced imports have triggered a sharp rebound in MEG prices. Subsequent geopolitical developments will dominate MEG price movements, and a relatively strong MEG price is expected to persist in March. Risks: 1. Unexpected escalation of geopolitical tensions; 2. Downstream resumption of work falling short of expectations.
Crude oil prices rose in February. In the first ten days of the month, market concerns about the uncertainty of US-Iran relations and the unresolved potential supply risks led to price increases. In the middle ten days, market concerns about escalating US-Iran tensions, coupled with the lack of substantial progress in the Russia-Ukraine peace talks, further increased potential supply risks, leading to price increases. In the last ten days, the new round of US-Iran negotiations made some progress, but significant differences remained, resulting in a period of consolidation at high levels for oil prices.
PX prices were relatively strong in February. Geopolitical tensions within the country led to rising crude oil prices, providing strong cost support. On the supply and demand side, domestic PX supply remained high, even increasing further in the latter part of the month, while imports remained stable, resulting in an overall ample supply. Downstream PTA operating rates were low, and polyester operating rates fell more than expected, leading to overall PX inventory accumulation. The PXN price spread narrowed slowly. Despite the unfavorable PX supply and demand situation, PX prices fluctuated strongly due to cost support.
PTA prices remained volatile in February. The ongoing US-Iran negotiations disrupted oil prices throughout the month, providing some cost support for raw materials. Before the holiday, the supply chain was impacted by seasonally weak demand and accelerated inventory accumulation, suppressing PTA prices. Post-holiday demand recovery was slow, continuing to drag down PTA prices, and the PTA processing margin narrowed accordingly. The interplay between relatively strong costs and seasonally weak supply and demand kept PTA prices volatile.
MEG prices weakened in February. At the beginning of the month, a sharp correction in precious metals dragged down other commodities, and MEG prices returned to fundamentals, shifting significantly downwards. Mid-month, with the approach of the Spring Festival, market trading contracted, and MEG prices fluctuated weakly. Post-holiday MEG inventory accumulation at some major ports in East China fell short of expectations, coupled with a moderate increase in costs, leading to a slight recovery in MEG prices from their lows.
The sudden escalation of the Middle East geopolitical situation at the end of February, particularly Iran's announcement of the closure of the Strait of Hormuz, has dramatically increased market concerns about oil supply. The core logic of the current oil market has shifted from "supply and demand surplus" to pricing based on "geopolitical risk." The market generally believes that with the closure of the Strait of Hormuz, a "world oil valve," the geopolitical risk premium will be rapidly pushed up. This strait handles approximately 20 million barrels of oil daily, accounting for over 20% of global seaborne oil trade. Its closure directly threatens global oil supply, and many institutions predict a significant short-term rise in oil prices.
The current surge in oil prices has raised questions about the Federal Reserve's ability to control inflation, cooling expectations for interest rate cuts. The conflict adds new uncertainty to monetary policy. Tensions in the Middle East will continue until Iran is willing to return to negotiations. Although Trump has repeatedly attempted to cool oil prices through rhetoric, his efforts have been ineffective as the situation has spiraled out of control. On the other hand, shipping shows no signs of recovery, and production cuts in countries like Iraq continue to widen, making actual supply losses a foregone conclusion. Current oil price trends remain driven by the war, and the focus will remain on whether the US and Iran intend to de-escalate the conflict. If the conflict lasts for two weeks, Brent crude prices may break through $90/barrel; if it lasts for a month, Brent crude prices may reach a new historical high.
In March, domestic and international PX plants will begin maintenance, and PX supply is expected to decline from its high levels. Furthermore, the closure of the Strait of Hormuz due to the Middle East geopolitical conflict has significantly increased expectations of raw material shortages for Asian refineries, and some plants may reduce their operating rates as a precaution, potentially increasing PX supply losses. Meanwhile, downstream polyester operating rates are gradually recovering, and the PXN price spread may stop falling and rebound. Although PX itself has strong supply and demand, it is more important to pay attention to the impact of the Middle East geopolitical situation on PX costs. PX is expected to likely follow oil prices with a wide range of fluctuations.
The Middle East geopolitical situation continues to escalate, and with strong PX supply and demand, cost support is relatively strong. Increased supply coupled with weaker-than-expected demand recovery led to continued inventory accumulation in PTA in March. With PX strengthening, PTA fundamentals are under pressure, and processing margins are expected to narrow, resulting in a weaker basis. In summary, poor PTA fundamentals have led to reduced profitability, but due to strong cost support, PTA prices are expected to fluctuate primarily in line with raw material prices in the short term.
Medium-term iron ore (MEG) average operating rate is likely to drop to below 70% in March, and imports may decrease significantly due to shipping disruptions, resulting in a substantial overall supply reduction. Meanwhile, demand is gradually recovering, and the MEG supply-demand structure is shifting towards destocking starting in March. Geopolitical conflicts have caused cost increases and reduced imports, prompting a sharp rebound in MEG prices. Subsequent geopolitical developments will dominate MEG price movements, and MEG prices are expected to remain relatively strong in March.
