FocusAsia PX falls on weak downstream market; IX under pressure

27 August 2009 06:48  [Source: ICIS news]

By Salmon Aidan Lee and Bohan Loh

SINGAPORE (ICS news)--Asian paraxylene (PX) prices have come off in recent weeks with producers struggling to generate margins as demand from downstream polyester market has waned, industry sources said on Thursday.

This price weakness, which may extend through to September, has also been exerting pressure on prices of its upstream isomer-grade xylene (IX).

The price spread between the two aromatics has fallen to $185/tonne (€130/tonne) on Wednesday, $15/tonne below the threshold of $200/tonne that PX producers need to cover their operation costs, according global chemical intelligence service ICIS pricing.

PX producers had enjoyed around $270/tonne profit margin in May but this has significantly declined to $20/tonne in August.

Spot PX prices have fallen about 9% to $1,045-1,055/tonne CFR Taiwan on Wednesday from 6 August levels, according to global chemical intelligence service ICIS pricing.

IX prices, meanwhile, were largely stable at $850-880/tonne CFR NE Asia on Wednesday from $850-870/tonne CFR NE Asia three weeks ago.

“It cannot sustain, as the fundamentals are weak and growing weaker,” said a Singapore-based IX trader with an international trading firm.

All IX output goes into the production of PX that it was natural for IX prices to fall in tandem with PX values.

But a northeast Asian producer, which has been the sole buyer during open-market trade since the week ending 7 August, has been supporting IX values, market sources said.

Market sources said the supplier - usually an active player on open-market trading - mopped up about 21,000 tonnes of September IX in the past month at prices that at times exceeded some traders' selling ideas.

“I have not received a single [IX buying] inquiry from Chinese end-users in the past two weeks,” said a Japanese trader of xylenes.

A major Korean end-user of IX, meanwhile, has been selling large volumes of the aromatic on the open market and is expected to move about 50,000 tonnes of US material to the East by the end of this week.

With more supply coming in against weak demand, most buyers could be holding back bids, anticipating IX prices to fall. Others may have sufficient inventory for August, which also explains the subdued buying interest for the material, market sources said.

Several PX plants were undergoing or would soon undergo maintenance turnarounds, while most aromatics producers were keeping relatively low operating rates on reduced refinery runs.

“The new PX capacities starting up in China and the Middle East were mainly integrated with upstream units, so buying of IX would still be limited to [Korean, Taiwanese and existing Chinese] end-users,” said a trader with Daewoo Trading.

Weak demand for IX could extend until October on expectations of continued weakness in PX prices in the coming weeks, said most market participants.

“I’ve seen five to six traders with September PX chasing after one willing buyer, so naturally prices would drop,” said a trader with Korean trading house LG International.

Market participants were also wary of a PX supply glut developing with the addition of greenfield capacities in China. This, along with weak demand, could further weigh down on prices, market sources said.

“The downstream markets, the [purified terephthalic acid] market is oversupplied and so is the polyester market. An oversupply of PX could mean extra-high PTA operations and that is not a good thing for us,” said a source from Xiang Lu Petrochemical, a leading producer of PTA in China.

PX prices weakened despite cautious selling and restrained output among suppliers, said market observers.

Crude oil, naphtha prices actually rose in the past two weeks, but still PX prices fell. IX would likely see a downside as well,” said a source from Taiwan’s Formosa Chemical & Fiber Corp (FCFC), an aromatics producer and IX end-user.

($1 = €0.70)

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By: Salmon Aidan Lee
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