FocusSinopec unveils new domestic PX contract price system

03 February 2009 05:26  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Major paraxylene (PX) supplier Sinopec has begun implementing a new contract price system for the Chinese domestic market this year which could eventually become a benchmark for the region, company officials and its customers said Tuesday.

The new Sinopec Contract Price (SPCP) system is a yuan-denominated price mechanism that offers an alternative to  the current benchmark Asian contract price (ACP) system, which is US-dollar based, sources said.

A Sinopec official based in Shanghai said the January price, the first SPCP settelment, was finalised at yuan (CNY) 5,600/tonne ($818.7) delivered, and the tentative offer price for February was higher at CNY6,200/tonne.

“The [new] price mechanism is based on the ACP system, which is already established in the international markets, as well as our own feedstock costs,” said another Sinopec official based in Beijing.

The Beijing official declined to provide further details of Sinopec's pricing fomula.

Sinopec, which the largest PX supplier in China, sold its material to domestic customers based either solely on the Asian contract price converted into Chinese yuan, or on a spot basis.

“It’s just like the monthly tentative price, the final price for (purified terephthalic acid) and caprolactam, the workings would be along the same lines,” said the Shanghai official.

In a set manner, Sinopec proposes a tentative offer price and settles it at the end of every month for several of its products, including PTA, monoethylene glycol and caprolactam. The new offer price for the subsequent month is usually made within 24 hours after the settlement price is announced, normally done on the last third working day of every month, sources said.

“This new [PX] price mechanism is good, in so far that we also have similar systems in the PTA market. So we sell our PTA based on the Sinopec monthly price and we also buy our [domestic] PX based on the Sinopec [monthly] price,” said a source from Hualian Sunshine Petrochemical, a leading PTA maker in eastern China.

Other PTA producers said that the new price mechanism could eventually become a second benchmark to the ACP, which was itself facing calls for a change.

“China is the most important market for PTA, and is now also becoming the most important market for PX, so the [SPCP] will have to be treated seriously,” said a source from Xiang Lu Petrochemical, a PTA producer in southern China.

“This is important for China, as several end-users like ourselves and [other PTA makers] mostly depend on Sinopec for our domestic PX supplies,” said a source from Yisheng Petrochemical, another PTA maker in eastern China.

“But whether it’s advantageous or not, I cannot say. The January price of [CNY5,600] is slightly higher than the ACP settlement,” added the Yisheng source, referring to the $630/tonne CFR Asia settlement for January.

Taking into account prevailing exchange rates, import tariffs and other logistical costs, the $630/tonne price worked out to be around CNY5,200-,5,300/tonne, with delivery costs estimated around CNY100/tonne.

It remains to be seen if other PX byers around the region will follow the lead from the SPCP system.

“This is new, but it’s interesting and because China is now a major PX market, we’d likely have to keep monitoring what the SPCP would be, as we also compete with the Chinese in selling our PTA,” said a source from Polyprima Karyareksa, an Indonesian PTA supplier.

As for whether the SPCP would replace the ACP, most market participants felt that it was too early to say.

“The ACP system took more than ten years to establish itself in Asia. I think we’ll have to wait and see when the market starts referencing to the SPCP as the benchmark,” said a source from a leading PTA producer in Taiwan.

($1 = CNY6.84)

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By: Salmon Aidan Lee
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