US-ASIA PX arbitrage window opens on US price slump

17 November 2005 05:52  [Source: ICIS news]

fashion models in polyesterBy Prema Viswanathan

SINGAPORE (ICIS news)--The arbitrage window between the US and Asia for paraxylene (PX) was thrown wide open this week as US prices plummeted to levels far below Asian prices due to oversupply in the US, traders and producers said.

A 5,000 tonne Asian PX cargo originally exported to US was rumoured to have been resold to Asia by an Asian trader for early December.

The parcel was sold at $740/tonne FOB US Gulf Coast (USGC), the traders and producers added, but the parties involved in the deal were not immediately able to confirm or deny the transaction.

Two other deals were also reported at $778/tonne FOB USGC and $750/tonne FOB USGC, but it was not clear if these consignments were headed towards Asia or other destinations.

"With freight between the US and Asia at $48-50/tonne, and the Asian bid-offer range at $870-890/tonne CFR Northeast Asia (NEA), the arbitrage is quite viable," said a trader. The last confirmed PX deal in Asia was settled last week at $900/tonne CFR Taiwan.

US prices collapsed early this week to below $750/tonne FOB, down over $400/tonne since mid-October, as the market recovered from the impact of plant shutdowns triggered by hurricanes Katrina and Rita.

But market sentiment was weak in Asia owing to declining demand from purified terephthalic acid (PTA) players due to a weak Chinese polyester market. This partly offset the positive sentiment from an operating rate cutback to 50% from 100% by South Korea's S-Oil last week at its 700,000 tonne/year plant in Onsan, due to mechanical problems.

But market sentiment was dampened byYizheng Chemical Fibre's outage at its 600,000 tonne/year PTA plant in Jiangzu province in China, which began on 9 November, due to mechanical problems. The plant is expected to restart by the end of this week.

The company had originally planned to debottleneck the plant to 700,000 tonne/year in November. However, a company source said last week that he could not comfirm whether the expansion would still take place as scheduled because of the mechanical problems.

Traders told ICIS news that there was a danger of US-Asia arbitrage grinding to a halt if PX prices in Asia decline sharply.

This was not an entirely inconceivable scenario, said a trader, as more PTA lines could be shut in China, South Korea and Indonesia due to poor economics.

PTA prices had declined last week to below PX costs, to the low $700s/tonne CFR China, from $790-800/tonne CFR China from the previous week.

Edson Jones contributed to this story.

By: Prema Viswanathan
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