Discussion on the stable foundation of the hottest

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PTA Market discusses the basis of stability

recently, PTA has maintained extraordinary stability during the period of great turbulence in the commodity futures market. While other varieties are performing a dazzling roller coaster like market, PTA maintains a stable upward channel and forms a clear upward trend

so, what is the reason that PTA is violently shaken in the surrounding markets, while crude oil is also plummeting at the high of $110/barrel, and it can survive? Where will PTA go in the later stage

we elaborate our views and put forward our views through the following paragraphs

first, the internal cause of avoiding the recent sharp decline in surrounding commodities is very obvious. There are two core factors that trigger the recent decline in the commodity market, especially the agricultural market. The first is the strengthening of domestic macro-control and the introduction of substantive measures; Second, foreign commodity markets were dragged down by the U.S. subprime debt crisis, and long funds continued to flee, triggering a unilateral decline in futures prices

but investors should clearly find that PTA is not affected by these two factors

first of all, look at domestic macro-control. The focus of national regulation is to lead the rise of the leading agricultural product system: edible oil! On March 15, 200000 tons of soybean oil was directly put into the market at a level lower than the market price of 2000 yuan/ton to stabilize the edible oil price. It should be noted that the focus of national regulation and control is on those commodities that have a large increase in the short term and have a direct impact on people's livelihood. Since the beginning of 2007, the growth rate of the whole edible oil system has reached 120%. After the Spring Festival in 2008, the phased growth rate in just one month was as high as 40%. PTA, on the other hand, is the same. After a long decline in 2007, PTA began to recover in early 2008. The price increase is not only far behind the overall market, but also far from the central axis of its historical price fluctuations of 11000 yuan/ton, which naturally makes it difficult to attract regulatory pressure

looking at the international market, PTA is a variety with Chinese characteristics. There is no corresponding commodity in the global market, and there is no direct impact of external market on it, which avoids the internal and external attack of PTA like soybean oil. So why didn't crude oil fall at a high level have too much impact on PTA? We believe that there are two reasons. First, there is a lag period in the direct transmission of crude oil price changes to PTA costs, and the time span is about a week; Secondly, since 2007, the domestic PTA market has been affected by factors such as overcapacity, MEG price rise, and excessive outflow of funds from the original market. The trend of PTA price (4) anti-corrosion effect has been divorced from the following characteristics of crude oil price, and the separation between PTA price and crude oil price is as high as 50% in the short term! Even if the current unreasonable degree of separation is corrected, it is more to turn to the state of PTA rising or falling relative to the change of crude oil price, and it is difficult to rise or fall in the same range

second, the stability factors of PTA market itself

first, the stability of domestic PTA spot market quotation. Since December 2007, the domestic PTA quotation has rebounded from the bottom of 6900 yuan/ton and began to rise steadily. As of March 25, the domestic PTA spot price has reached 8100 yuan/ton, while the domestic mainstream suppliers such as Xianglu, Yangzi and BP Zhuhai have raised the contract settlement price in March to 8350 yuan/ton. Spot traders continue to maintain bullish confidence. So, what is the reason supporting the steady rise of spot prices? We believe that there are the following reasons:

1. Cost support

since 2008, crude oil has continued to rise. As of March 13, crude oil once exceeded $110/barrel and is currently maintained at $100/barrel. Compared with the end of December 2007, the price center of gravity moved up by 20%. Crude oil prices rose, directly raising the PX price. As of March 25, the domestic PX production cost reached 1280 yuan/US dollar, an increase of 16.4% during the year. The production cost of PTA is 8150 yuan/ton. This figure increased by 13.2% over the end of 2007. Although the spot price of PTA has increased, PTA manufacturers are still operating at a low profit from the comparison of production costs. Still facing greater cost pressure. (see Figure 1)

Figure 1 Comparison between PTA production cost and spot price

comparison between PTA production cost and spot price. (source: Beite futures)

2. The price of surrounding commodities fell

meg was stimulated by the reduction of production capacity after August 2007, and the price soared. In just three months, the domestic spot price hit from 8500 yuan/ton to 15500 yuan/ton. The soaring price of MEG forced polyester manufacturers to invest insufficient funds in MEG stocking, which exacerbated the weak market of PTA in the current period. However, after MEG soared, with the recovery of damaged production capacity, the price quickly fell back to 10000~9500 yuan/ton, and the trend tends to be stable. The funds of polyester manufacturers have also been released and turned to PTA procurement. The proportion of exports to emerging countries will also be greatly increased, and the spot demand for PTA will also begin to enlarge, showing a pattern of booming supply and marketing in the market

3. Downstream demand began to pick up

after the Spring Festival, the operating rate of the domestic textile industry increased, and is currently stable at about 75%. The demand for polyester filament has recovered, and the production and marketing rate has remained above 80%. At the same time, the demand for downstream products, including polyester chips and direct spinning polyester staple fibers, is the first to resume the research on the experimental machine. The quotation of downstream products has also increased

whether the thermal viscosity of packaging materials is suitable or not directly affects the filling efficiency and bag breaking rate of the production line, production cost, capital return and downstream demand, while maintaining the foundation of PTA's stable rise

three conclusions and strategies

we believe that in the medium term, the basis supporting the stable rise of PTA is difficult to change. At the same time, the production units of mainstream suppliers will be overhauled in early April (with a capacity of 1.3 million tons), which further supports the spot of PTA

in terms of futures, we believe that PTA contracts will maintain a relatively stable rising channel structure, supported by 10 and 20 day moving averages. At the same time, technically, the PTA index built a bottom shape from October 2007 to February 2008, so according to the benchmark measurement increase, the index's rise target is primarily 7800+ () =8600. (see Figure 2)

Figure 2 PTA futures daily line analysis

PTA futures daily line analysis chart. (source: Beite futures)

in terms of operation strategy, we suggest investors to continue to maintain a long mentality and maintain an appropriate number of orders by relying on the 20 day moving average. With the mainstream support from cost factors, PTA's medium-term rising target may be further improved

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