FocusAsia PX recovers but outlook still uncertain

11 November 2008 17:33  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Asian paraxylene (PX) spot prices have started to recover from their lowest point since July 2003, but there remained doubt about whether the rebound could last, buyers and sellers said on Tuesday.

Market players have seen renewed demand among end-users and the re-emergence of a major trader-cum-supplier in the market to support PX above $600/tonne CFR (cost and freight) Taiwan.

“This has been a horrible year, not seen since the lowest point we saw some years back,” said a veteran trader with Summit International in Singapore.

The trader blamed the PX price plunge between July’s peak of $1,705/tonne CFR Taiwan and last week’s price of $560-580/tonne CFR Taiwan on a combination of weak demand, energy complex losses and trader panic.

The last time PX spot prices were this low was in July 2003, when prices were at $565-575/tonne CFR Taiwan.

Then, crude oil futures were no more than $30/bbl and derivative purified terephthalic acid (PTA) values were above $550/tonne CFR China.

Last week, PX prices fell towards $560/tonne CFR Taiwan, with rumoured transactions even as low as $540/tonne.

“This type of prices, even with naphtha costs less than $200/tonne [CFR Japan] and isomer xylene costs around $500/tonne [free on board Korea], we’re making losses,” said a source with Korean PX producer GS Caltex.

This is the first year since PX trading started in Asia that producers are making losses.

“Previously, we talk about margins, now we’ve nothing,” said a source from leading Japanese PX producer Japan Energy.

But this week showed that there was light at the end of the tunnel for PX sellers, as prices started recovering towards $600/tonne CFR Taiwan.

“We see SK Energy out on [open-market trading] again bidding up the market. Today they started at $591/tonne and went all the way to $610/tonne,” said a Korean broker and veteran market watcher.

Traders’ play aside, improved demand among some end-users also helped boost numbers, said market participants.

The restart of Hualian Sunshine Petrochemical, a PTA producer which is a frequent buyer of spot PX, also bolstered sentiment, said other players.

“Just last week, at least two or three cargoes were sold to Chinese and Taiwanese end-users, as prices at [$560-590/tonne] are very attractive to them, because they can make profit,” said a trader with Winsway Trading of Macau.

PTA spot prices stabilised at $550-560/tonne CFR China in the past two weeks, giving PTA makers a margin of about $25/tonne if taking into account prevailing PX spot numbers, said several players.

“If we can make money, we will continue, but if we cannot make ends meet, we’ll have no choice but to stop again,” said a source from Xiang Lu Petrochemical, one of the end-users which bought PX in the past two weeks.

“To a large extent, crude consolidating around $60/bbl helps a lot in stabilising sentiment, which has been so badly shaken in the price crash in the past months,” said a trader from Landmark Trading.

“PX producers are still in theory making losses, so there’s a limit how much PX can go down, and so the next natural way is for it to go up a bit,” said an official from Chinese PTA producer Yisheng Petrochemical.

Nevertheless, not every player was convinced that the recovery could sustain, much less recoup, ground lost in the past few months.

“The future direction of energy prices, it’s very uncertain. Who said crude cannot go below $50/bbl or $40/bbl?” remarked the procurement manager of a major Taiwanese PTA producer.

“Crude oil prices shot up and brought up [the price of] PX and almost every petrochemical in the earlier half of this year, so naturally we can expect it to bring down PX if it falls further,” said the PTA producer.

Considering the lacklustre conditions in the downstream polyester and textile markets - and the possibility that PTA makers could resort to production cutbacks again once their margins are eroded by dropping PTA prices - the possibility of the current PX uptick fizzling out remained very real, said traders.

For more on PX and PTA visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Salmon Aidan Lee
+65 6780 4359

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