Analysis: Paraxylene market set for recovery

27 March 2001 16:13  [Source: ICIS news]

LONDON (CNI)--Paraxylene (PX) margins are unlikely ever to be as low again, in relative terms, as they were in 1998-99, according to a study, "The New Economics of Paraxylene", released just ahead of next week's National Petrochemical & Refiners Association (NPRA) annual conference in San Antonio, Texas.

Despite the apparent chaos and weakness of the market in recent years, PX pricing has behaved in an entirely predictable and quantifiable way, says the joint study by PCI Xylenes & Polyesters and The Pace Consultants.

"Of all aromatics products, PX is consistently the most difficult to rationalise," said PCI director Steve Jenkins. "Many producers across Europe and North America have struggled to understand the motivation and rationale behind PX market developments and consequent pricing in Asia, despite having to remain competitive with it."

After spending nine months researching the economics and pricing behaviours of the market and modelling the PX production of the world's 10 leading producers, the authors conclude that Asian producers dominate market pricing because of the structure of their businesses and assets. These producers have a strong rationale for their pricing philosophies, although the PX market had appeared irrational to some observers.

The study disengaged aromatics production from gasoline production, to compare the producers on a like-for-like basis, for the first time.

It established that most producers, whether manufacturing PX or any other chemical, rely on their own internal cost conventions and allocations to measure the financial performance of their business units. This can cloud their ability to make critical comparisons of their cost position and performance. This can cause them to have over-optimistic views about their competitiveness, and creates the risk that investment decisions will be flawed.

PX capacity grew year on year from 1995, rising on a global basis from 11.5m tonne/year to 20.6m tonne/year by 2000. This investment in production capacity was made despite margins slumping in 1996 and persisting at levels well below perceived investment criteria since then, said the study.

The authors predict that the market will recover in the coming years, and they offer an insight into future margin generation and pricing mechanisms. They also model an optimised future PX producer, located in the Middle East, to assess how the industry today will compete with the producer of tomorrow. They say that new plant designs, technologies and configurations can maximise PX production while minimising less desirable streams, such as benzene.

"The New Economics of Paraxylene" is available from PCI Xylenes & Polyesters (Tel:+44 1483 302267;

By: Alex Crawford
+44 208 652 3214

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