Aromatics Outlook Cloudy for 2002

24 December 2001 00:00  [Source: ICB Americas]

Most major aromatics fared poorly in 2001 because of the feedstock and macroeconomic problems that plagued the petrochemicals industry in general. A significant recovery is not expected until the economy revives, and that appears unlikely until the second half of 2002 or later. Changes in global trading patterns could also shift the US market during the next few years. The tensions in the Middle East threaten to disrupt global trading in petrochemicals, and China's entry into the World Trade Organi-zation may cause massive shifts in aromatics trade among the US, China and Korea.

Styrene is coming off a brutal year that producers consider their most difficult in two decades. Benzene also had a rough year, caught between oscillating energy and feedstock costs and weak demand for derivatives, especially styrene. Producers say styrene is already on the comeback trail, but a real recovery will not occur until the US economy picks up. North American demand for styrene will be off by 8 or 9 percent in 2001, according to The Dow Chemical Company. If exports are included, the North American market will be down 10 percent. Dow says that in 2000, global styrene demand was 20.9 million metric tons. It fell to 20.3 million metric tons in 2001, but it should rebound to 21.2 million tons next year. Chevron Phillips Chemical Company LP expects the styrene market to continue to recover slowly in the first and second quarters of 2002, but the company notes that once the economy picks up, styrene could surge because of restocking throughout its depleted derivatives chain.

China's entry into the World Trade Organization may present an opportunity for US exporters of paraxylene and terephthalic acid, and China could become another market for the spot benzene, toluene and xylenes that South Korea and Taiwan often ship to the US, but China may also evolve into a major exporter of aromatics to the West.

"Is China an opportunity or a nightmare," a US-based analyst questions. "Will the balance of trade in aromatics be more going to China or more coming from it?" He notes that China has 20 to 40 small phthalic anhydride plants that are considered old and inefficient. Such plants could be shut down, paving the way for a surge of imports from the US, but China could also modernize those plants and even expand them.

"They've taken a lot of technology from the West, and they'll be fighting to stay competitive," the analyst says. "China has stated a goal of becoming a major exporter of petrochemicals to the West by 2010 or earlier. Will they run inefficient, heavily polluting plants that would be shut down over here? They need more xylenes. Will they build large refineries or import more?"

The troubles that beset the paraxylene market in 2001 illustrate the dangers China may pose. On a global basis, PX demand continues to grow rapidly, but during the past four years Asian producers greatly increased their capacity as that region became the world's dominant producer of textiles and clothing. Although the PET resin industry continues to grow rapidly in the US, North American demand for PX during 2001 was only flat at best. The domestic clothing industry remained under severe pressure from low-cost imports from Asia, undermining domestic demand for polyester fibers.

North American PX producers say their market is in better shape than it was a year ago, but the industry has so much overcapacity, derivatives are unlikely to become tighter until 2003, and a significant recovery is unlikely before the latter half of 2004. Domestic producers complain that the Asian PX industry has become massively overbuilt and many Asian producers would be uncompetitive if held to Western accounting standards.

Steve Jenkins, an analyst at PCI Xylenes & Polyesters Ltd., Guildford, UK, projects that the PX market should come back into balance globally by 2003 or 2004, but prices could rise as soon as the second or third quarter of next year. He says that on a global basis, PX is growing at a 6.5 to 7 percent annual clip, but the market has been depressed since 1997 because of oversupply.

Global demand for PX surged 9.5 percent in 2000, reaching 17.1 million metric tons. Despite the world's economic troubles during the past year, the PX market should still grow 3.5 percent in 2001, reaching 17.7 million metric tons. Yearly growth will climb back to 7.5 percent, according to Mr. Jenkins, and the global market will reach 23.7 million metric tons by 2005. But in 2000 and 2001, producers added 3.38 million metric tons of capacity, raising the market's overcapacity to 4.34 million metric tons, roughly 20 percent of its current nameplate.

The fourth quarter Asian contract price for PX has settled at $418 per metric ton, list, according to Bert de Guzman, DeWitt & Company's vice-president for BTX and derivatives in Asia-Pacific. "Considering the high prices prevailing in October and November for spot PX, the final settlement represents a major concession to the PTA makers," Mr. De Guzman says. "PX producers recognized the tight predicament PTA makers are in. With PTA at $345 to $370, c.f.r. China, for most of the quarter, it is difficult to make a profit even at prevailing spot prices of $320 to $330, c.f.r. Asian ports. PTA firmed up slightly last week with buyers offering to pay $360, c.f.r. China, and sellers holding firm at $370 to $380, c.f.r."

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