Paraxylene Contracts Fall Again

18 January 1999 00:00  [Source: ICB Americas]

By Janet Link

The US contract price for paraxylene during the first quarter declined by 0.5 cents per pound, reflecting weak energy markets and severe oversupplies throughout the polyester chain.

The drop in first quarter pricing puts the contract market at 14.25 cents per pound, paraxylene's lowest relative price in 25 years. During the fourth quarter of 1998, US paraxylene contracts fell by a penny, from 15.75 to 14.75 cents, despite producers' efforts to raise contracts by 0.75 cents. European first quarter paraxylene pricing also settled lower, at DM 525.

"Paraxylene, PTA (purified terephthalic acid) and polyester were all overbuilt," a paraxylene buyer notes. "In the case of paraxylene, it will be another one-and-a-half to two years before demand starts to catch up with supply." He blames the poor condition of the Asian market for putting a particular strain on the US industry.

Paraxylene consumers say the weak Asian market has not only dampened exports, it has triggered an increase in imports of polyester-based finished goods during the past year. Such imports have dampened domestic demand and raised operating cuts.

During the third quarter of 1998, paraxylene consumers cut back production and, in some instances, shut down derivative units because of slack demand and poor margins. Those cutbacks continue in all segments of the polyester business from fiber to film and polyester resin.

A significant improvement in polyester demand is not anticipated in the short-term.

"There may be some improvement due to inventory replenishing in the new year," a market participant notes. He adds that the PET and PTA segments of the business will rebound before the paraxylene market improves.

Most expansions planned for those businesses are either already on line or about to come on. In the case of paraxylene, however, a much larger chunk of new capacity will come on in the next year. Analysts do not expect the market to adjust to the new capacity until well into the year 2000. With regard to paraxylene pricing, producers say that much will depend on crude oil prices.

For months, soft crude oil prices have weakened the prices of basic aromatic petrochemicals, and mixed xylenes have not escaped that downward pull. Contract xylene prices fell from 59 cents per gallon in December to 51 cents per gallon in January (CMR, 1/11/99, pg. 5).

Crude oil prices, however, firmed during the first 10 or 11 days of January. West Texas intermediate material, the benchmark of the US market, moved above $13.25 per barrel early last week, up from late December levels of $10.50 per barrel.

If the upward trend in crude oil pricing continues, or even if prices remain near last week's levels, analysts say there will be little chance of paraxylene contracts falling even lower. They note that margins for paraxylene producers are already at or near zero.

Yet aromatics traders cite a large gap between spot and contract prices for paraxylene and warn that spot pricing could continue to exert downward pressure.

Spot paraxylene is a mere 10 cents per pound on the US Gulf, and business was conducted at $218 to $220 per ton, f.o.b. the US Gulf. The European market is equally weak, with pricing around $225 per ton, delivered to Rotterdam.

BTX--A slight firming in energy prices lent some support to spot aromatics early last week. Spot xylenes showed the most strength, with prices moving several cents per gallon above the level reported a week earlier. February xylenes were offered at 54c. per gallon, with buying interest closer to 52c. to 53c. per gallon.

Material was about 1c. higher for January than February. Analysts attribute some of the improvement to increased buying interest from South Korea. Traders also cite limited spot availabilities and a recent refinery problem in Corpus Christi as reasons for the slight firming of the spot xylenes market.

February benzene was offered early last week at 74c. to 74.5c. per gallon, with buying interest closer to 72c. to 73c. January material was talked at 73c. to 75c. per gallon, close to levels indicated a week earlier. Although operating difficulties at several aromatics facilities have recently weakened benzene production, consumption is being further reduced by major styrene turnarounds during the first quarter.

The spot toluene market was quiet early last week. Buying interest was estimated at 50c. to 51c. per gallon, but selling interest was closer to 52c. to 54c. for both January and February.

EDC/VCM--Formosa Plastics Corporation said last week that it has determined the cause of the explosion in an ethylene dichloride (EDC) tank at its Point Comfort, Tex., facility on December 4. The cost of the damage, however, is still unknown.

According to the company, the tank's corrosion-resistant polymer lining inhibited its normal static electricity grounding system. Oxygen and ethylene, which had been dissolved in the dry crude EDC liquid, vaporized in the atmospheric tank. The presence of an ignition source (static electricity), an oxidizer (oxygen vapor) and a fuel (EDC and ethylene vapors) led to the explosion which destroyed the tank and damaged a similar one immediately adjacent to it.

The results of Formosa's internal investigation have been confirmed by a separate investigation by an independent consultant and are being shared with federal and state regulatory agencies, employees and residents of Point Comfort and neighboring communities.

To prevent a recurrence, the EDC process has been redesigned to eliminate the use of an atmospheric tank during routine production, the company says. A secondary system is being designed to control the level of oxygen in the vent system.

As an additional safeguard, all other process vessels in the EDC plant were examined to identify and eliminate conditions that could lead to a buildup of static electricity and oxygen vapors.

Six of the eight production units at Formosa's Point Comfort facility, including the VCM and PVC units, were brought back to operation only a few days after the incident. The olefins unit resumed operation on December 15.

A partial start-up of Formosa's EDC-chloralkali unit is scheduled for January 16. The company expects to meet its PVC orders through January, but to do so, the company will have to purchase EDC.

ETHYLENE--Supplies are tight in the Louisiana market because of recent plant difficulties. Dow Chemical confirmed last week that it brought down its ethane-propane cracker in Plaquemine, La., around January 1 following a utility malfunction. That unit, which was down 11 days, resumed operation on January 11.

Dow's ethane-propane cracker at Plaquemine produces about 1.1 billion pounds of ethylene annually. A flexible cracker at the same site, which did not experience any operating problems, produces around 1.4 billion pounds of ethylene per year.

ETHYLENE GLYCOL--Dow Chemical confirmed last week that its EO/EG plant at Plaquemine, La., came down for scheduled maintenance during the first week of January. The plant is scheduled to come back up on January 26.

MTBE--Traders say that spot MTBE has been trading actively since the beginning of January. A run-up in finished gasoline prices has made MTBE more attractive economically, spurring spot buying.

Early last week, January material was around 48c. per gallon in the US Gulf, with February material closer to 49.5c. In New York Harbor, January material was 50c. to 52c. per gallon, and February supplies were around 52c. to 53c. per gallon.

STYRENE--Spot styrene prices in the US Gulf Coast rose significantly in January. The loss of additional production time at one of Lyondell Petrochemicals' styrene units in Channelview, Tex., because of an operating problem encountered during scheduled downtime was a major factor behind the rise in spot styrene prices.

Lyondell's PO/SM 1 plant at Channelview was initially scheduled to come down for planned maintenance for a few days in mid-January. But the plant's yields declined during the holidays, and the company decided to take the unit down for two or three days during the first week in January.

When the company began to bring the plant back up, they encountered a compressor problem. As a result, PO/SM 1 was only running at 50 percent of capacity last week. The company planned to have the plant back at full rates by the end of the week of January 9 or the beginning of the week of January 16.

Producers and traders say styrene is still short in the US. One producer attributes this, in part, to higher prices in Asia and a decision by some market participants in recent months to move more material from the Gulf to Asia and also to Europe.

In addition to Lyondell's problems, two turnarounds are planned for February, one at Sterling Chemical's plant in Texas City and one at Cos-Mar's facility in Carville, La., (CMR, 1/11/99, pg. 9).

Traders note that at least 8,000 tons of spot styrene were sold in early January at 17.5c. to 18c. per pound, up significantly from the 17.25c. to 17.5c. per pound levels reported in late December. The material at the low end of the range was sold at Lake Charles, La., with the remaining material sold on a Houston basis. A trader said early last week that the new asking price for spot material is 18.5c. per pound, f.o.b. Houston.

Contract styrene pricing is not yet settled for January. Producers, citing rising spot prices and tight supplies, are hopeful for a rollover, but lower benzene prices are exerting downward pressure on the market.

A producer indicated at the beginning of January that it settled several December contracts at an increase of 0.5c. per pound. But there have been other indications of December business settling at a rollover. Transaction pricing is in the low 20c. per pound range.

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