FocusPolyester boom in China pushing up PTA, PX prices

30 July 2009 07:40  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--The current boom in the Chinese polyester industry is supporting gains in feedstock purified terephthalic acid (PTA) pricing in the past two months, which in turn has pushed up paraxylene (PX) values.

But market participants said they believed the price uptrend was not merely demand-induced but also supply-led.

PTA spot prices hit as high as $950/tonne (€675/tonne) CFR China this week, a steep $70-80/tonne up from last Friday’s close of $870-880/tonne CFR China, according to ICIS pricing.

Just a month ago, PTA values were no more than $830/tonne CFR China, and in early June were still struggling to break above $800/tonne CFR China.

As for PX prices, the gains were almost equally robust. Between mid-June and this week, prices had spiked $170-200/tonne. And between mid-June and early July, PX prices were hovering around $1,000-1,030/tonne CFR China.

“The gains had come well beyond most people’s imagination, frankly we didn’t expect it ourselves either,” said a source from BP, a major producer of PTA in Asia and a leading PX supplier globally.

In fact, PTA producers had been enjoying profits for the most of this year, a departure from the loss-making days between late 2006 and most of 2007-2008.

“It’s obvious that downstream demand is pushing up prices [of PTA], but at the same time, we’re also not producing enough to meet this strong demand,” said a source from Yisheng Petrochemical, a leading Chinese PTA producer.

PTA makers had been cautious with pushing their operating rates to 100% of nameplate capacity, after the losses seen in the past 2-3 years, traders said.

“Yes, we did not produce full this year, as we were so concerned [earlier in the year] that the more you produce, the more losses you’d make,” said a source from a major PTA producer in Taiwan.

Such cautiousness among PTA makers had also compelled them to commit to less feedstock paraxylene (PX) contract volumes.

A rough estimate by traders suggested that most PTA producers had only locked in about 50-60% of their PX needs in contracts this year, setting the stage for the spectacular price gains of both PTA and PX.

“For whatever reasons, the downstream [polyester] market was so bullish, and we found ourselves regularly running out of PTA to sell this year,” said a source from Formosa Chemical & Fiber Corp (FCFC), major PTA maker in Taiwan.

“So we changed our minds and really wanted to have more PX after all, but with outages here and there, and limited PX to begin with, we cannot produce that much PTA,” added the FCFC source.

Those who managed to chase down the PX successfully maintained optimal PTA operating rates, and enjoyed profitability, said a source from Oriental Petrochemical (Taiwan), a PTA maker which was one of the most aggressive buyers of spot PX in the past two months.

“The strong downstream demand pushed up PX prices too naturally, and you know, the [cautiousness] seen among [PTA makers] was also seen among [PX producers],” said a PX broker from Korea.

Indeed, PX producers in Asia had the concept that the market would soon become oversupplied, with new Chinese and Middle Eastern PX capacities coming onstream in the second half of this year.

As such, they kept low operating rates of no more than 80% on average, and were very careful with their spot sales, said a Korean trader based in Singapore.

“As we all know now, the opposite happened, and PX suppliers were also caught off-guard, and they did not have enough PX to sell to a hungry downstream market,” said another PX broker, based in Japan.

Of course, poor returns for refineries since crude oil prices collapsed late last year also contributed to the relatively low PX output, market sources said.

“Refineries are seeing poor returns, so they would not run too high [operating rates], so naturally we see less aromatics in the market,” said a Singapore-based trader representing a Middle-Eastern owned company.

Besides poor refinery returns, lacklustre margins for chief aromatic benzene also hampered aromatics output, said a source from Japan Energy, a leading aromatics producer.

Benzene margins were very bad earlier this year, so even if we want more PX, even if our customers want more PX, we cannot give them,” added the source.

Hence, to many market watchers, this year’s PTA-PX price trend so far seemed to be a case of misjudgement and wrong calculations.

“I think it’s fair to say most of us got it wrong; we thought prices would collapse but the opposite happened, and nobody is talking about the supposed oversupply [of PTA and PX] now,” said a source from Sam Nam Petrochemical, a leading producer of PTA in Korea.

($1 = €0.71)

For more on PX & PTA, visit ICIS chemical intelligence
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By: Salmon Aidan Lee
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