17 March 2008 03:40 [Source: ICIS news]
By Salmon Aidan Lee
SINGAPORE (ICIS news)--Paraxylene (PX) values – recovering from an almost nine-month lull lasting until mid-February – may gain for at least another two months amid high upstream prices and strong downstream demand, buyers and sellers said on Monday.
PX spot prices recently started rising amid strong liquidity after the Chinese New Year holidays last month. Prices hit $1,260-1,270/tonne (€806-813/tonne) CFR (cost and freight) ?xml:namespace>
Prices were almost stagnant between November last year and early February, due mainly to poor market conditions downstream and extra spot supply, a leading broker based in
The monthly Asian contract price in the four months was a uniform $1,100/tonne CFR Asia during the period.
During this period, derivative purified terephthalic acid (PTA) prices dropped below $800/tonne CFR China, and resulted in aggressive production cutbacks among most PTA makers in
PTA production cutbacks weakened demand [for PX]. With PTA makers not having strong margins, they did not buy their usual PX spot volumes, a trader with Macau-based Winsway Trading said.
“Downstream needs to be healthy to be able to support higher PX prices; it is useless to keep harping on crude prices, naphtha prices and the upstream situation,” a procurement official with a mid-sized Taiwanese PTA maker said.
“But because the PTA sector recovered strongly after the Lunar New Year holidays, and PX producers started reducing operating rates in December on the back of squeezed margins, prices of PX managed to recover,” he added.
“Actually, it is also the work of two major producers, who are essentially propping up the market with aggressive purchases,” said another major broker based in
Korean PX major SK Energy had been actively picking up spot parcels since last year with purchases which were often higher than the prevailing market prices, observers said.
Japan Energy joined SK’s ranks early this year, after informing its contract customers that it would cut operations due to squeezed margins and instead supply them partly with spot purchases.
“We were told of their plans [to buy in the spot market], but we were not surprised given that crude oil and naphtha prices were also very high for them [to maintain margins],” the procurement manager of a major PTA producer in Taiwan said.
“In a way, because any unsold PX could easily find a buyer in either [SK or Japan Energy], traders became less worried [that they might be] caught with no buyer, and were thus more willing to trade nowadays,” said a veteran trader based in
This helped boost liquidity in the market, and nowadays, having some three or four deals a day, or even 15 deals a week, is very common, the second Korean broker said.
Yet, it was just last year between May and December that liquidity collapsed and prices dived, said market observers.
“Last year was bad because some traders exited the market after making massive losses, and trading simply went into a lull after that,” said a Korean trader based in
Now that better days had arrived, the question on most players’ minds seemed to be how long this trend could last.
“The price jump [in the past month] had caught us by surprise, definitely,” said an official from Chinese PTA producer Yisheng Petrochemical unsure about how long it could last.
However, some participants, both buyers and sellers, believe the uptrend could last at least for the next one to two months.
“It’s been quite some time since the downstream and upstream markets are seeing rising prices at the same time, and no one sector in the [polyester and feedstock] chain was suffering from massive losses,” said an official from another mid-sized PTA maker in Taiwan.
“Since crude oil and naphtha prices are not expected to be low anytime soon, and since some major aromatics makers in Asia had cut back on production, the tightening supply could ensure that PX prices remain high,” a source from Sinopec, an integrated PX-PTA producer in
“And since demand for PTA remained strong, and PTA prices had risen [in the past one month] and are expected to rise further, we see a good chance that the bullishness would extend to April or even May,” added the Sinopec official.
($1 = €0.64)
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