16 July 2008 05:21 [Source: ICIS news]
By Salmon Aidan Lee
SINGAPORE (ICIS news)--The gap between northeast (NE) and southeast (SE) Asian solvent-grade xylene prices has narrowed to around $10/tonne after almost six months of wide disparity as China resumed imports, buyers and sellers said on Wednesday.
The difference in prices saw sellers diverting cargoes from the loss-making north to the more lucrative south, they added.
Last week, a deal into China – the first in a month – was reported at $1,268/tonne CFR (cost and freight) while just a day earlier, a fixture into SE Asia was booked at $1,290/tonne CFR.
By Tuesday this week, discussion levels were almost similar in both regions at $1,240-1,250/tonne CFR China and $1,250-1,260/tonne CFR SE Asia.
“This is a big difference from what we saw in March, April or May,” said a trader from Daewoo Trading of South Korea.
In March, CFR China prices were at $950-980/tonne, while exports ex-Korea were pegged at $930-980/tonne on an FOB (free on board) basis. FOB and CFR prices were almost always similar between then and mid-June.
“That was a horrible time,” said the Daewoo trader. “Our cost was the same as prices being done into China, so we need to think of selling elsewhere.”
Most solvent xylene traders did exactly that, as SE Asian demand was strong in the earlier half of this year and could accept prices as high as $1,030-1,040/tonne on a CFR basis in March, according to ICIS pricing.
In fact, SE Asian prices were consistently about $50-100/tonne higher than Chinese import values, prompting almost all NE Asian exports to be diverted to the south.
“Other cargoes, from India, from anywhere [in Asia] simply came to SE Asia and trades into China basically came to a stop,” said an Indonesian trader.
“In China earlier this year, two new plants started up so supply [within China] was more than enough for the use in the downstream sectors,” said a trader from Southern Petrochemical, referring to the Zhoushan and Dalian projects which started up in May and June respectively.
Zhoushan Hebon Chem produces 200,000 tonnes/year of xylenes at its new unit at Zhoushan city in Zhejiang in eastern China, while Dalian Petrochemical churns out 450,000 tonnes/year of xylenes in the northern province of Liaoning.
And due to competition from these new entrants, leading supplier Sinopec had kept its prices in the Chinese domestic market low in the past three months, said a trader from Topship Chemical, a major importer of xylenes into China.
“With the Chinese domestic prices generally stable, and supply adequate, imports simply could not come in as Korean and other international sellers were asking for higher prices with the increase of crude oil prices, the increase in other aromatics prices,” said the Topship trader.
However, it became obvious starting last week that there was “only so much SE Asia can take from the supplies meant for the big Chinese market,” said a Singapore-based trader.
Hence, prices between these regions have started to narrow and “SE Asian buyers are also getting very smart, they know China does not buy so high prices, so they won’t pay so high too,” said a Philippine trader, who believed that the gap had closed for good, at least for the rest of the year.
“Crude oil prices had started falling in recent days, and if the [surge] in aromatics prices we saw earlier this year does not repeat itself, then SE and NE Asian prices should not be so different,” said another Philippine trader.
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