PX Prices Undermined by Weak Global Market

27 July 1998 00:00  [Source: ICB Americas]

By Janet Link

The continued global weakness of polyester derivatives is putting significant pressure on the US market for paraxylene, the precursor for polyester resins, fibers and films. Despite producers' efforts to raise prices, US paraxylene contracts rolled over for the third quarter at 15.75 cents per pound, a historically low level, and producers warn that no relief is in sight.

Paraxylene manufacturers, citing higher prices for xylene feedstocks and relatively good domestic demand, were seeking price increases of at least 1.25 to 1.75 cents per pound for the third quarter. But problems in the international market undermined their efforts.

"Continued weakness in polyester markets and the fact that other paraxylene producers in the world with lower feedstock costs were able to settle at lower prices" were the main reasons for the failure of the US price increase, according to David Witte, director of polyester and polyester raw materials for Houston-based consultancy CMAI.

Producers say third quarter paraxylene prices also rolled over in Europe at DM 624 (15.72 cents per pound). Asian pricing is not yet settled for the third quarter, but expectations are for a rollover around $350 per metric ton.

Spot paraxylene prices have softened steadily this year, reflecting oversupply and weaker demand in many regions. In South Korea, spot pricing is around $270 per metric ton on an f.o.b. basis.

Spot pricing on the US Gulf is $310 per metric ton, although a buyer was recently offered material at only $295. Less than a month ago, the spot price was at least $20 per metric ton higher. Three years ago, paraxylene commanded a spot price of nearly $2,000 per metric ton.

Another reason for the depressed US market is the volume of polyester fiber being exported to the US from weaker economies such as Asia. "This is driving fiber and PET prices down," a producer says.

"More specific than the volume being offered is the price at which it is offered," adds Mr. Witte. "Even if it is not a large volume, the weak prices impact the entire US business."

Emphasizing the weakness in the Asian polyester market, US producers estimate that this year China is only buying about half the purified terephthalic acid (PTA) and polyester it normally buys.

Exacerbating the market's fears is a strong rumor that a very large Asian fiber producer has declared force majeure on more than one cargo of paraxylene purchased from US traders because of PTA plant operating problems.

This is unconfirmed. Two traders who have cargoes on the water to that consumer said early last week that no force majeure had been declared at that time.

The deterioration in margins has led to cutbacks in US paraxylene production, particularly among producers with TDP units, at least one of whom confirms greatly reducing its paraxylene output. Producers say it is more economical to buy paraxylene on the spot market than to make it.

"The US market is probably a little tighter than the rest of the world," a producer says. "Our cost position is higher and people are not as likely to make spot material. Also, our domestic demand is still pretty good, but as the PET season winds down, that may taper off."

Even with production cutbacks, most manufacturers expect little near-term improvement in the paraxylene market, especially in light of global capacity expansions.

Chevron's paraxylene expansion at Pascagoula, Miss., was in the pre-start-up phase last week. The expanded plant was already making on-specification product, a source at the company said early last week. PX capacity at Pascagoula has been nearly doubled to slightly more than 450,000 metric tons (1 billion pounds) per year.

Later this year, Amoco will bring on an additional 350,000 metric tons (770 million pounds) per year of capacity at Decatur, Ala., raising that site's annual capacity to 1 million metric tons.

In addition, new paraxylene capacity will come on stream in Saudi Arabia in late 1998 or early 1999. Expansions are also slated for India, Malaysia, Thailand and Taiwan, all in 1999 or early 2000.

BTX--Spot BTX trade remained stagnant early last week on the US Gulf Coast, with the overall spot aromatics trade assuming a weaker tone. A decline in crude oil futures and a sharp drop in gasoline futures on the New York Mercantile Exchange last Monday contributed to the market's bearish tone.

Spot benzene was 73.5c. to 74.5c. per gallon for August material early last week, roughly the same level reported a week earlier. No announcements were made regarding August benzene contract pricing, and analysts expect a rollover.

Spot toluene was talked around 68c. to 70c. per gallon at the beginning of last week, but with gasoline futures dropping on Monday, the toluene market saw little activity.

Early last week, spot xylenes were offered at 66c. to 66.5c. per gallon for August. Buying interest was closer to 65c. per gallon. The July contract price is 69c. per gallon, but uncertainty regarding August contracts kept spot buyers on the sidelines.

BUTADIENE--Contract pricing for butadiene rolled over in July at 17c. per pound. Pricing has been at that level since March. Producers generally view the rollover as indicative of a good balance between domestic supply and demand.

According to one source, US butadiene stocks were 166 million pounds on July 1, a decline of 18 million pounds since June 1 and 65 million pounds since April 1.

Lower stocks on July 1 may reflect reduced production in June. Two producers, Huntsman Chemical and Equistar, both had recent maintenance turnarounds. In addition, another producer was reported to be running at reduced rates in late May, June and early July because of an operating problem.

Imports of finished butadiene have returned to more typical levels, following a sharp decline earlier this year.

According to Vincent Guercio, an analyst in Montclair, N.J., imports of finished butadiene from Europe were 22,000 metric tons in June and 28,000 metric tons in July. He expects August imports from Europe to be around 21,000 metric tons. Mr. Guercio estimates imports of finished butadiene to the US from all sources at 36,000 metric tons in June, 38,000 metric tons in July and a projected 31,000 metric tons in August.

In the February-May period, monthly US imports of finished butadiene from Europe averaged 13,000 to 15,000 metric tons, according to Mr. Guercio. Average monthly imports of finished butadiene from all source were 20,000 to 26,000 metric tons during that period.

While imports of finished butadiene are higher than they were earlier this year, analysts say imports of crude C4's are relatively small because demand is soft.

MTBE--Spot trade was relatively quiet early last week. Prices were slightly lower than their level a week earlier.

Traders report a couple of small deals done early in the week on either side of 67c. per gallon for July spot material. August spot pricing was talked at 0.5c. to 1c. per gallon lower. Trade in New York Harbor was particularly slow, with no spot business confirmed there early last week.

Producers say buyers are working off their stockpiles of MTBE. MTBE stocks were down for the week of July 13, according to the American Petroleum Institute.

Arco Chemical is reported to be facing operating problems at its Channelview, Tex., plant, which came down for maintenance in second half of June. A source at the company confirms an operating problem but will not comment on the plant's current operating rate.

Texas Petrochemical Company is tentatively scheduled to take down one of its dehydro units for maintenance in late July. Industry reports circulated early last week that the company is having operating difficulties with its other dehydro unit at Houston, but sources could not be reached for comment.

ORTHOXYLENE--A two-month settlement was reached for orthoxylene contracts. Both June and July settled at 14c. per pound. Analysts consider the market very weak and note that prices have not been this low in many years.

STYRENE--Spot styrene pricing remains soft on the US Gulf. Styrene supply has improved on the Gulf now that a series of plant turnarounds has been concluded. Demand continues to suffer from a lack of export opportunity.

According to traders, the export window to Europe is shut because of lower prices, and there is no incentive to move styrene into the weakening Asian market.

July spot styrene recently traded at 18c. to 18.25c. per pound on the US Gulf, but talk was at lower levels early last week. Sources indicate that August material can be bought at 17.5c. per pound, but sales at this level are unconfirmed.

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