FocusPX poised to remain firm after surge to nine-months high

01 May 2009 05:07  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Paraxylene (PX) spot prices had surged more than $300/tonne – 35% - in the past two months due to strong demand and tight supply, and could remain firm despite some players guessing that the rally could end soon, buyers and sellers said on Friday.

This week, PX prices hit $1,200/tonne CFR (cost and freight) Taiwan and/or China for May and June deliveries, according to global chemical intelligence service, ICIS pricing.

This was an almost $350/tonne spike from end-February, when prices hovered at $850-860/tonne CFR Taiwan and/or China.

“Demand from end-users is very strong, we don’t have much of material to sell as overall operating rates have not been high to begin,” said a source from PTT Aromatics, a Thai producer with two PX units.

Due to handsome margins for derivative purified terephthalic acid (PTA) makers, demand for PX had been exceptionally strong.

“Based on the contract prices of PX, and the PX spot prices we have been getting, we can still make money, so it’s a no-brainer to say we need to increase our operating rates,” said a source from a major Taiwanese PTA producer.

“The whole chain is actually very healthy, not only do we need the PX, our customers also chase us for the PTA they need, demand is just so good it’s becoming a bit dizzy,” said a source from Tuntex Petrochemical, a Taiwanese PTA producer.

Indeed, based on prices of PX, PTA and leading grades of polyesters and polyethylene terephthalate (PET) products reported in the past month, margins could be as much as $600/tonne for PX producers, $150-160/tonne for PTA makers.

Only PET bottle and fibre chip makers saw squeezed margins, but they were not making losses either, said buyers and sellers.

“I don’t know the real reason behind such bullishness frankly, as the world economy is actually so bad. But I do know that as long as we make money, we’d keep producing and that means I’ve no choice but to keep buying PTA,” said an official from Southern Holdings, a mid-sized producer of polyester filament yarns.

While some market observers believed that the Chinese polyester and textile industries had been artificially propped up by macroeconomic and fiscal measures by the central government, others said fundamentals were still sound.

Fabric transactions in the China Textile City at Shaoxing had climbed up to more than 7m metres per day this week, a steady uptrend from about 5m metres per day in mid-March, said officials from the quasi-government body monitoring transactions.

Polyester production had also been relatively high in most parts of China, no lower than 70% of nameplate capacity and some “big boys” were even producing at full rates, said these officials.

“It’s clear to us, we just need to sell as much as PTA as we can since our customers want it, and we must sell in order to get the margins,” said an official from Yisheng Petrochemical, one of the largest PTA producers in China.

Given such bullishness in the downstream markets, PX traders had been encouraged to take long positions.

“I think as long as the downstream markets remain healthy, we can continue to push up prices,” said a Singapore-based trader with an international firm.

Most participants seemed to agree, pointing to the fact that aromatics producers, especially those in Japan and southeast Asia, were still keeping production relatively low on poor returns from chief aromatics, benzene.

“It’s not only about benzene, it’s also about our [perennial] concerns that we may not be able to sell again if the market collapses suddenly, like last year,” said a source from Nippon Oil, explaining why the aromatics giant was keeping production relatively low.

“Without good returns from benzene, unless your margins from PX can more than cover the benzene [losses], we could remain very conservative [in our operating rates], and don’t forget, higher run rates could also bring benzene prices even lower,” said an official from Taiwan’s CPC Corp, the main aromatics supplier on the island.

Nevertheless, some observers warned that after more than two months of sharp gains, it was no longer given that PX could extend the uptrend into May.

“Producers in Korea, they’re thinking of postponing turnarounds again, which had been planned for April, then pushed to May and now maybe June,” said a source from Samsung Corp, a trading house in Korea.

New PX capacities – projects by CNOOC-Kings and Fujian Refining and Petrochemical – in China could also start-up between May and June, and that would likely weigh on sentiment, said a source from Xiang Lu Petrochemical, another leading PTA maker in China.

“We also see sluggish energy prices, sluggish naphtha prices, so please don’t assume that PX could keep rising,” said a source from a leading PTA producer in Taiwan.

($1 = €0.75)

For more on aromatics visit ICIS chemical intelligence
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By: Salmon Aidan Lee
+65 6780 4359

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