CITIC Securities Futures: Energy and Chemicals Morning Report March 23

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PX:

Supply and demand are stable with increasing demand. China’s PX industry load decreased slightly by 0.1% to 84.6%, while Asia’s industry load decreased by 2.1% to 74.8%, due to concerns over upstream raw material supply stability. Some PX units in Asia have taken preventive measures to reduce load. Attention is on domestic refineries’ “oil preservation and chemical reduction” efforts. On the demand side, as PTA maintenance units gradually restart as scheduled, April production will significantly increase. PX fundamentals remain relatively strong within the industry chain. With the start of PX maintenance season, inventory is expected to shift from accumulation to depletion starting in March, and this depletion pattern is likely to continue into the second quarter. Sources say Iran hopes to monetize control of the Strait of Hormuz, planning to charge about $2 million per passing oil tanker. However, Trump has demanded Iran open the strait within 48 hours, or he will destroy its power plants. Another report states Trump’s team is developing strategies for possible Iran peace negotiations. As a result, Brent crude oil prices rose again to around $108 per barrel on Monday morning. The key to the current situation is whether the 5,000 US troops dispatched to the Middle East will launch a ground attack to seize Iran’s Hakkar Island. This outcome will determine whether oil prices will continue to rise or fall. It is expected that PX May futures will fluctuate with a bullish bias due to rising costs and tightening supply. Before the Strait of Hormuz reopens clearly, consider buying PX May contracts on dips. The short-term market is experiencing profit-taking and adjustments, with support levels after extreme corrections being monitored. PX May support has been lowered to around 9,500. The spread between PX May and September is below 400, suitable for buying on dips.

(Disclaimer: Li Sijin, futures trading consulting license: Z0021407, for reference only)

PTA:

Supply and demand are both increasing. This period sees a mix of unit reductions and restarts. PTA industry load increased by 0.7% to 80.7%, reaching a high level for the year. On the demand side, some foreign trade orders are accepting current high prices due to tight delivery schedules. Terminal factory operating rates remain stable, but high raw material prices are beginning to restrict downstream restart progress. Some manufacturers may reduce load or halt production due to lack of orders. Polyester industry load increased by 0.9% to 87.6%, with a higher probability of production cuts in April. The PTA supply-demand outlook for April is weakening, with attention on aromatics refining. Overall, cost support remains strong, while short-term polyester feedback is unlikely to be significant. The market has recently seen profit-taking and adjustments, so watch support levels after extreme corrections. Consider buying PTA May contracts on dips, with support around 6,500.

(Disclaimer: Li Sijin, futures trading consulting license: Z0021407, for reference only)

EG:

Supply and demand are stable with increasing demand. Domestically, ethylene glycol (EG) industry load decreased by 0.3% to 66.5%, with synthetic gas-based load down 2.4% to 72.3%, still relatively high for the year. Profits from synthetic gas-based EG have recovered significantly as prices rise, and delays in maintenance are expected to increase. Overseas, multiple units are undergoing unplanned maintenance due to force majeure, coupled with transportation disruptions in the Middle East, which will further reduce EG inventories in April by about 200,000 to 300,000 tons per month. Attention is on overseas ethylene prices. Recently, EG export inquiries have surged, with buyers from India and South Korea aggressively seeking exports. The spot basis and monthly spreads for EG have strengthened, with warehouse receipts beginning to flow out. Overall, EG May futures are expected to fluctuate with a bullish bias, mainly on dips, with support around 4,800-5,000. The spread between EG May and September is below 100, suitable for buying on dips.

(Disclaimer: Li Sijin, futures trading consulting license: Z0021407, for reference only)

PF:

Supply and demand are both increasing. Spinning short fiber (SSF) direct-spun polyester load increased by 3.2% to 89.0%, with factories gradually restarting as planned. Industry operating rates have returned to neutral levels for the year. On the demand side, high prices have suppressed downstream procurement, leading to sluggish market transactions and insufficient terminal orders, mainly to clear inventories. Some downstream companies are increasing recycled short fiber usage, but the recovery of spinning mills’ load is slow, up 2.0% to 61.0%, still at a five-year low. Overall, cost support remains, and PF June futures are expected to fluctuate with high raw material prices, supported around 8,000-8,200. Due to strong EG, consider a long PF short TA strategy.

(Disclaimer: Li Sijin, futures trading consulting license: Z0021407, for reference only)

PR:

Supply side remains strong. The bottle chip industry load increased slightly by 0.1% to 72.0%, as force majeure or delayed performance notices were issued, with major factories reducing contract volumes, maintaining a strong supply. On the demand side, the terminal market is in peak procurement season. Soft drink demand peaks in summer, with domestic factories placing orders in March-April, likely providing some demand support. Overall, cost support persists, supply remains strong, and PR prices are expected to outperform other polyester products. Support levels are around 8,100-8,300. Watch for long PR and short PF opportunities; a correction in PR in May-June can be used for shorting, and industry participants can actively sell short and hedge PR May and June futures.

(Disclaimer: Li Sijin, futures trading consulting license: Z0021407, for reference only)

Crude Oil:

Since the beginning of the year, global oil inventories have decreased by 0.7%. Recent data shows crude oil inventories down by 1.1%, refined oil down by 2.2%. Rapid production cuts in Persian Gulf countries have turned the recent balance sheet from a surplus of 3-4 million barrels per day to a deficit of about 4 million barrels per day, confirmed by inventory declines. Last week, Israel’s attack on Iran’s South Pars gas field and subsequent strikes on Middle Eastern energy infrastructure temporarily boosted oil prices. If WTI quickly breaks above $100 per barrel, it could sharply increase US inflation pressures in April and May. The US and Israel will likely focus attacks on nuclear and military facilities in the short term, and easing Iran sanctions through phased sanctions relief could temper oil prices. Outside the less likely peace negotiation scenario, the possible reopening of the Strait of Hormuz requires more extreme oil prices to incentivize Western naval escort or US military control. Trump also threatened to attack Iran’s power plants if Iran does not open the strait within two days. Short-term oil market risks remain skewed upward; holding bullish crude oil options is recommended to hedge against extreme high prices.

Trading strategy: Hold bullish crude oil call options.

(Disclaimer: Gao Mingyu, futures trading consulting license: Z0023613)

Fuel Oil & Low Sulfur Fuel Oil:

Last week, Singapore high and low sulfur fuel oil crack spreads diverged. Tightness in the diesel market has increased low sulfur fuel oil production, further boosting cracks. After the phased lifting of US sanctions on Russian and Iranian oil, supply expectations for high sulfur fuel oil in Asia-Pacific have recovered. Outside the less likely peace negotiation scenario, reopening the Strait of Hormuz would require more extreme oil prices to facilitate Western naval escort or US military control. Trump also threatened to attack Iran’s power plants if Iran does not open the strait within two days. Short-term oil market risks remain upward; fuel oil prices are expected to follow crude oil fluctuations and stay relatively strong.

Trading strategy: Observe and wait.