Outlook '06: China to remain driver of aromatics

04 January 2006 04:48  [Source: ICIS news]

By Yeow Pei Lin and Clive Ong

Man praying/empicsSINGAPORE (ICIS news)--China should remain the main driver of aromatics in 2006, with its ability to absorb the new capacities around the region and at home likely to play a major part in determining the market’s direction.

Asia, as a whole, should have an oversupply of benzene while remaining a net importer of toluene and isomer xylene during the year, sources told ICIS news.

Take toluene and isomer xylene. Reliance on arbitrage material from the US has been crucial for meeting the region’s demand, but this could weaken due to new capacities and higher demand from US gasoline blenders.

The major start-up of the year is SK Corp’s new reformer in the second quarter. Located at Ulsan, South Korea, it would be able to produce 320,000 tonne/year of isomer xylene and 270,000 tonne/year of toluene. The company is in talks to sell the output to two domestic buyers, who imported 30,000 tonne/month of toluene and 100,000 tonne/month of isomer xylene from the US in 2005.

"If the negotiations are successfully concluded, the buyers would have the flexibility to reduce their imports,'' said a trader.

Imports could also decline due to demand from US refineries for alternative octane boosters like toluene and isomer xylene, given that methyl tertiary-butyl ether (MTBE) will be phased out as a gasoline additive in 2006 due to environmental reasons.

Sellers and buyers, unsurprisingly, had differing views of the market.

"China is starting 2006 with low inventories compared to the first quarter of 2005, when speculative trading resulted in huge stock levels. The tight supply will help drive demand, especially after the end of the Chinese New Year holidays in mid-February,'' said a South Korean producer.

The isomer xylene market should be more buoyant than the toluene sector due to demand from China’s paraxylene (PX) industry, added another seller. South Korea's GS-Caltex will start up a 700,000 tonne/year PX unit at Qingdao, Shandong Province, in the third quarter of 2006, while Yangzi Petrochemical will hike the capacity of its facility at Nanjing, Jiangsu Province, by 250,000 tonne/year to 800,000 tonne/year.

Buyers, however, were less sanguine due to the start-up of several new plants in the second half of 2006. Apart from SK Corp's reformer, two aromatics facilities with a combined isomer xylene capacity of 290,000 tonne/year in Japan and another unit in China are expected to come on stream.

Importers were also uncertain about China's appetite for toluene and mixed xylene, which are used mainly as solvents in the country.

"Demand has been disappointing in 2005, partly due to high international prices. We anticipate strong competition from other substitutes if the situation continues,'' said one source

There is a similarly mixed view of the benzene market. Some believe it is promising due to new downstream capacities - around 770,000 tonne/year of styrene monomer (SM) capacity came on stream in China in 2005, in addition to 900,000 tonne/year of phenol capacity in Northeast Asia. In 2006, CNOOC & Shell Petrochemical Co (CSPC) will start-up its 550,000 tonne/year SM unit at Daya Bay, Huizhou, Guangdong Province, in the first quarter of 2006.

This, however, will be countered by new benzene capacities from South Korea’s SK Corp (70,000 tonne/year), Indonesia’s Trans-Pacific Petrochemical Indotama (207,000 tonne/year), Thailand’s Aromatics Thailand Co (363,000 tonne/year) and GS-Caltex Oil (240,000 tonne/year) at Qingdao. In Japan, Idemitsu Kosan will start up a mothballed 250,000 tonne/year unit at Chiba, Chiba Prefecture, with the output equally offtaken by Mitsui Chemicals and Sumitomo Chemicals.

That means the Asian benzene market will continue to be long in 2006, according to a trader. The spot Asia-US arbitrage window, which was largely closed in the second half 2005, will be crucial for benzene sellers to take the length out of the Asian bourse.

Imports into China have been growing since mid-July 2005 as traders speculated on the benzene market, pushing imports above 30,000 tonne each in September and October. However, a downturn in the fourth quarter saw most imports stuck in shore tanks.

A broker based in China said that Chinese traders’ participation in the spot benzene market was likely to rise in 2006, "given the volatile nature of the market and the wide price swings."

With benzene prices more than $300/tonne lower than SM for several months, it has been easier to trade it than the monomer, they added.

There will be several new SM facilities in China this year, including CSPC’s unit and a 200,000 tonne/year plant called Jiangsu Lishide in mid-2006. Yet, despite this, China will continue to be a net importer with the volumes remaining above 3m tonne, according to several estimates.


By: Yeow Pei Lin
+65 6780 4359



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