Vying for the Asian lead

09 August 1997 00:00  [Source: ACN]

Asian PX sellers criticise the push by US producers for a price hike in Q4, saying they want 'stable pricing'

By Michael Wilczek

US PARAXYLENE (PX) producers may be setting themselves up for another black eye in contract negotiations in Asia with their demands for price hikes of 2-3 cent/lb in Q4.

The early move has been strongly criticised by both buyers and producers in Asia who say they want stable pricing the whole industry in Asia can live with. The US nominations are not realistic considering the weak Asian polyester market, they argue.

US producers lost the battle for a 4 cent/lb increase in Q3 with hardly a fight. The market quickly accepted a 1 cent/lb hike, with China American Petrochemical Co (Capco) leading the Asian contract price.

Capco is expected to use its clout as the world's largest PX buyer to take the lead in contract negotiations again in Q4. Company sources would not comment on what price it would accept for Q4, but some market players believe the company will push for a rollover.

Japanese PX producers are taking a much more conciliatory approach to contract talks than US producers. None of the Japanese producers have nominated prices for Q4. They are still studying what price the market can support.

'We are also eager to increase the price, but we have to think very carefully about the purified terephthalic acid (PTA) and polyester markets, and what they can support,' a Japanese producer said.

'We believe a modest increase will benefit both PX and PTA producers.'

Japanese producers believe a 1 cent/lb increase for Q4 would be reasonable. Even if producers could push through a 2-3 cent/lb increase, they would have to give it all back in Q1 1998 after PX goes into oversupply, one Japanese producer said.

US producers view Q4 as their last chance to hike prices before new PX capacity floods the market in 1998, and they want to make as much money as they can before the business gets really bad. The low contract price in Q3 did not even cover raw-material price increases for PX, producers said.

'The Japanese just do not like roller-coaster pricing, but PX producers have been losing money in Q3,' one US producer said.

US producers also believe the Q3 settlement favoured PTA producers too much. As PX supplies tightened through Q3 because of outages, spot prices spiralled. PX producers watched as spot prices climbed as much as US$120/tonne above the contract levels of US$495/tonne cfr Asia. PTA prices held steady for most of the quarter at US$640/tonne cfr Asia.

'It is time PTA producers share these margins with their PX suppliers,' one US producer said.

US producers are also under intense pressure from their domestic buyers to keep US and Asian PX contract prices at the same level. US buyers held out for about a month in Q3 before the US contract price (USCP) was settled at the Asian contract price flat. The settlement was 2 cent/lb below US domestic nominations of 24.5 cent/lb. The same scenario was also played out in Q2.

There is no reason why the US and Asian prices have to be connected, Asian market players argue. The US polyester market has been much stronger over the last year than the Asian market. The US market can support a higher PX price than Asia, said a major Asian buyer. However, US buyers want the prices linked so they can stay competitive in Asia.

The correction taking place now has been seen as inevitable. Exxon and Chevron's allocation programmes had driven prices up to unreasonable levels, market players said. Supplies were extremely tight in June and July, but had eased significantly by August. Downstream markets have not been able to continue to support spot prices above US$600/tonne fob Korea.

Spot buyers remain hard to find. Most major spot PX buyers are covered until October and are waiting for prices to fall further. Many buyers are also starting to worry about their PTA inventories as sales slow down.

Reliance has bought its September cargoes and is believed to be covered well into October. The delay of Polyprima's PTA startup means it is now covered until November (ACN 8 September p40). The company had been scouring Asia for spot cargoes in June and July for the planned August startup.

How the supply situation will unfold through Q4 is the major source of uncertainty underpinning the current confrontation between east and west PX sellers.

PX producers are predicting tight supplies for most of the quarter because of extensive PTA capacity increases.

However, there is still some question over how fast new PX capacity will come on-stream. Plant startups by Samsung General Chemicals and Ssangyong Oil are already weakening market sentiment.

Buyer ideas have fallen below US$500/tonne cfr Asia. The last physical sale was done at US$530-540/tonne fob Korea. Market players are now waiting for the award of Chinese Petroleum Corp's latest PX tender for a better idea of where spot prices stand.

H2 1997 Asian PTA startups ('000 tonne/year)
Company	Capacity	Location	Startup
Amoco/Mitsui Petchem	350	Serang, Indonesia	Sept
Samsung Petrochemical	250	Ulsan, South Korea	Oct
Polyprima	350	Merak, Indonesia	Sept
Samnam Petrochemical	350	Yeochon, South Korea	Oct
ICI Taiwan	450	Kuan Yin, Taiwan	Aug
Source: ACN database

H2 1997 Asian PX startups ('000 tonne/year)
Company	Capacity	Location	Startup
Samsung General Chemicals	350	Daesan, South Korea	Aug
Ssangyong Oil	600	Onsan, South Korea	Oct
Hyundai Oil	350	Daesan, South Korea	Dec
Source: ACN database

The tender was scheduled to close on 28 August, but a typhoon delayed the award (ACN 8 September p40). Traders believed that bids for the 4000-tonne cargo were US$470-490/tonne fob Kaohsiung.

Samsung General Chemicals' PTA plant is now offtaking material from its 350 000 tonne/year PX plant which started in August. Although production at the PX plant has still not reached full capacity, it is already supplying small amounts of PX to Samsung Petrochemical Corp.

Market players are now carefully watching how Ssangyong Oil decides to operate its 600 000 tonne/year PX plant. The startup is expected to begin in September. However, the amount of PX the South Korean refiner produces will depend on the alternative values of toluene and mixed xylenes. If margins are better on either of the two products, Ssangyong may decide to produce less PX.

Demand for South Korean toluene in Japan is expected to be strong in Q4. If toluene prices remain at present levels, the PX plant may only run at 60-70%, sources said.

Chevron will start suppling contract customers again with full volumes starting in Q4. However, it is still not known if Exxon will continue to keep customers on allocation next quarter as problems continue at the company's Baytown, Texas, facility. It will be at least mid-September before Exxon will be able to restart the plant, an Exxon source said.

Balancing additional capacity in Q4 are three major PX turnarounds scheduled for October in Japan and South Korea. LG-Caltex Oil will shut down its two plants in Yeochon, South Korea, for 15 days each. The plants have a total capacity of 650 000 tonne/year. Yukong will shut its 350 000 tonne/year No1 plant in Ulsan, South Korea, for 25 days. Teijin plans to shut its 250 000 tonne/year plant in Matsuyama, Japan, for 30 days.

In addition, most of the PTA plants which are starting now are expected to be running at close to full capacity during Q4.

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