FocusAsia PX gains on thin ice on brittle downstream support

30 March 2009 06:27  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Asia paraxylene (PX) spot values have gained up to $70/tonne (€52.5/tonne) in the past two weeks on rising prices in the polyester chain of products but the uptrend may not last on weak downstream demand and new PX capacities due this year, buyers and sellers said on Monday.

PX prices crossed above $950/tonne CFR (cost and freight) Taiwan last week and had started flirting with the $1,000/tonne CFR Taiwan level after almost six months in the three-digit territory.

But buyers and sellers said it was unclear if PX prices could truly break above – and stay above – the $1,000/tonne threshold, given uncertainties in the downstream purified terephthalic acid (PTA), polyester and textile sectors.

“PX sellers are now very lucky, they have met with tremendous support from the downstream markets and also tight supply from past production cutbacks,” said a source with KP Chemical, a south Korean producer of both PX and PTA.

“I would say many of us were over-pessimistic between last year and [earlier] this year, so PX producers cut back on production and now without full operations, PX supply remains tight,” said the KP source.

PX price uptrend was supported by polyster producers who despite losses were maintaining around 70-80% of production, and PTA producers remained eager to produce more in order to meet demand.

“In order to produce, we need to buy the PX, no choice, so prices of PX rise and we chase after it,” said an official with Chinese PTA maker Zhejiang Yuan Dong Petrochemical, formerly known as Hualian Sunshine Petrochemical.

Industry officials estimate that current PX output in Asia has stagnated at around 80-90% of nameplate capacities in the past two months, partially because aromatics producers were cautious not to repeat the acute oversupply situation between the third and fourth quarters last year.

“We’ve to be very careful, even as PX margins are now back as up till today, benzene margins are just so-so,” said a source with Taiwan’s CPC Corp, the chief aromatics supplier on the island.

Many downstream players said they believed the recent price run-up in PTA and PX was more due to restocking and supply-led, rather than demand induced.

A Chinese trader with Zhangjiagang-based Teracle Trading said buying among the end-users “was actually very slow, and orders for garments, textiles were very few, so prices of PTA and PX had risen only because everybody wanted to keep their business going.”

“The uptrend has also come at a time of higher crude oil, naphtha prices, and we see aromatics prices shooting up as well,” said another Zhangjiagang-based trader, who works for Jiangsu Huasu Trading.

Crude oil prices at the New York Mercantile Exchange broke above $55/bbl for the first time in almost six months last week, and aromatics products such as benzene and toluene witnessed price gains of as much as $120/tonne and $45/tonne respectively.

Some market watchers said the current PX price rally was also threatened by new capacities coming onstream in the next few months. The new capacities in China alone include CNOOC-Kings Group’s 800,000 tonne/year project at Huizhou, Shanghai Petrochemical’s 600,000 tonne/year line at Jinshan, Fujian Refining and Petrochemical’s 700,000 tonne/year unit and Fujia Dahua Petrochemical’s 800,000 tonne/year facility at Dalian.

“Jinling Petrochemical [in China] is already running and we’ve new capacities in the Middle East starting later this year," said a source from a major Korean aromatics producer. "So we’re not optimistic that the current PX uptrend could last a very long time.”

“Nobody knows when the downstream markets would give way, not even us, so watch out, it may crash as quickly as it has risen,” said another source from Hangzhou Top Polyester, a polyester producer in eastern China.

($1 = €0.75)

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By: Salmon Aidan Lee
+65 6780 4359

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