Geopolitical tensions continue to fluctuate, yet their impact on chemical products is diminishing. The PTA market is currently caught in a tug-of-war between shrinking supply and weak demand. Influenced by concentrated maintenance schedules and operational losses, the PTA operating rate has dropped to a near five-year low. On the demand side, polyester operating rates have fallen to 81%, a 9% decrease compared to the same period last year. This supply-demand mismatch forms the core logic behind the current range-bound fluctuations in the PTA market. Looking ahead to May and June, supply contraction is expected to slightly outpace demand reduction, with PTA inventories projected to passively decrease by approximately 450,000 tons. Although fundamentals are showing marginal improvement, high inventory pressure persists. Consequently, PTA prices are anticipated to continue their range-bound pattern.

1. Supply Side: Operating Rates Hit Bottom, Restart Concerns Loom as Processing Fees Recover PTA unit operating rates have reached a historical bottom. As of May 12, the PTA capacity utilization rate fell to around 63.17%, hitting a near five-year low. Forced by deep losses in March-April and high social inventories, companies were compelled to implement large-scale planned and unplanned production cuts. With a dense schedule of maintenance plans for May and June, monthly output is expected to drop to 5.85-6 million tons, significantly below the 2025 monthly average. The supply side is exhibiting the most pronounced contraction in recent years. However, the maintenance wave harbors the risk of a supply rebound. As processing fees recover rapidly, the willingness of some units to maintain reduced operations may waver. As of May 12, the average PTA processing fee had rebounded to 314 yuan per ton, a sharp increase of 59% month-on-month. This profit improvement creates the possibility for idled units to restart. Attention should be paid to the potential for some capacity to delay maintenance or restart early due to recovering profitability.

2. Cost Transmission Blocked, Downstream Negative Feedback Emerges Downstream polyester demand is undergoing its most severe test in recent years. As of May 12, polyester operating loads had fallen to 81%, down approximately 9% year-on-year. Polyester plants are grappling with finished product inventory buildup, with polyester filament and staple fiber inventories climbing to high levels of 30 days and 19 days, respectively. Although terminal grey fabric inventories have dropped to a near seven-year low, extremely low purchasing enthusiasm is hindering demand transmission. This has forced major polyester filament producers to signal further production cuts to cope with the predicament. The collapse in demand is weakening the positive impact of supply reduction brought about by PTA maintenance. The recovery in the terminal weaving sector is also sluggish, failing to generate effective demand pull. As of May 7, the comprehensive operating rate for chemical fiber weaving in the Jiangsu-Zhejiang region was 51.82%, up 1.83 percentage points from the previous period. The average order days for terminal weaving stood at 8.76 days, an increase of 0.81 days from the previous week. Although post-holiday startup rates are in a recovery phase, downstream restocking demand remains tepid due to instability in the raw material market. As temperatures rise and the off-season gradually approaches, operating rates in the weaving industry are expected to face renewed pressure.

3. PTA Inventory 'Debris Dam': Maintenance and Exports Drive Destocking Amid the dual decline in supply and demand, although the destocking process began in April, the high base inventory remains a "debris dam" looming over the market. This has resulted in only a slight increase in the spot basis differential since maintenance commenced on April 9, with clearly insufficient upward momentum. May and June will be a critical window period to validate the destocking logic, during which PTA inventories are projected to decrease by about 450,000 tons. The core drivers for this expectation are the continued contraction of domestic supply due to the dense implementation of maintenance plans and a significant increase in exports. Influenced by India's zero-tariff policy and geopolitical conflicts, monthly exports to India in the second quarter are expected to rise.

4. Summary In summary, the current PTA market is in a stalemate characterized by a dual decline in supply and demand. Upstream operating rates have fallen to a low of 63%, while downstream polyester demand is equally weak, with operating loads down to 81%. This collapse in demand significantly offsets the benefits of supply reduction, leading to a slow-paced destocking process for PTA despite its initiation. Driven by both export growth and the realization of maintenance plans, a passive inventory drawdown of approximately 450,000 tons is anticipated for May-June, suggesting marginal improvement in fundamental supply and demand. It is recommended to adopt a range-trading strategy, while monitoring risks associated with unit restarts and the progress of downstream inventory destocking.