Intermediates: Asian phthalic anhydride producers desperate for relief

26 September 2011 00:00  [Source: ICB]

In Asia, rocketing feedstock orthoxylene prices have made PA a losing proposition

Pinched between weak demand and high feedstock costs, Asian producers of phthalic anhydride (PA) say they can no longer cover their costs. Producers have been more fortunate in the US and Europe, where demand has been weak but the cost of feedstock orthoxylene (OX) manageable.

Producers in Asia say the situation is unsustainable. To cope, some have reduced operating rates, while others have shut down production altogether.

"With such high feedstock orthoxylene costs, PA producers are losing money with every tonne of material produced," lamented one South Korean producer.

Calculations based on last week's prices confirm the claim.

On September 16, ICIS assessed PA spot prices at $1,460/tonne (€1,070/tonne) CFR (cost & freight) CMP (China Main Port), and OX at $1,575/tonne CFR NE Asia (Northeast Asia). The synthesis of one tonne of PA typically consumes about 950kg (2,090lb) of OX, a cost of $1,496 at the current rate. If conversion adds $100/tonne, the total cost of production is $1,596/tonne - $136/tonne more than the market price.

"This situation is dire, which is why regional producers are slashing PA production rates," a Chinese producer said.

In China, Shandong Hongxin is operating its three PA lines, with a total production capacity of 120,000 tonnes/year, at 70% of their capacities.

India's IG Petrochemicals Limited (IGPL) is running its PA plants at 70% utilization. IGPL operates two PA lines in Taloja, near Mumbai, with a combined production capacity of 116,110 tonnes/year.

In South Korea, Aekyung Petrochemical has lowered the operating tempo of its 150,000 tonne/year dioctyl phthalate (DOP) plant at Ningbo in Zhejiang province to 50% of capacity because it cannot obtain sufficient feedstock PA. "OX and PA prices are high at present," a company official explained. "It really does not make sense for us to keep our DOP production rates high." The price of DOP was assessed at $1,815/tonne CFR East Asia on September 16.

The major applications for PA are the manufacture of phthalate plasticizers such as DOP, used in the plastic polyvinyl chloride (PVC), and the production of unsaturated polyester resins (UPR).

Tight supply is likely to keep OX prices high in the coming weeks, according to some market participants. They note that OX competes with paraxylene (PX) for feedstock isomer-grade mixed xylenes. With PX, a key precursor of polyethylene terephthalate (PET), selling at a premium, most OX makers are focused on maximizing PX yields. PET bottle-chip prices in Asia were nearing historic highs during the week ending September 13.

In the US, PA prices are losing momentum after a brief rise, and the market is balanced. September contracts for PA were assessed up 5.50 cents/lb ($121/tonne) early in the month. Molten-grade PA was settled at 80-87 cents/lb FOB (free on board) USG (US Gulf), while flake material was settled at 81-88 cents/lb DEL (delivered) USG. The increase was equal to the rise in the August OX contract, which was settled at 65 cents/lb FOB USG.

OX producers sought a similar increase for September contracts and began negotiations by nominating 70 cents/lb FOB, 5 cents/lb above the August contract. They settled for 0.5 cents/lb, making the September contract price 65.50 cents/lb. US PA producers expect to get a 0.5 cent/lb increase in the October PA contract.

Major PA producers in the US include BASF, Stepan, Koppers and ExxonMobil Chemical. Major US OX producers include ExxonMobil and Flint Hills Resources.

Europe, however, is structurally oversupplied.

European PA contracts for September, settled in the second week of the month, rolled over from August at €1,240-1,270/tonne ($1,700-1,740/tonne) FD (free delivered) NWE (Northwest Europe) for liquid and €1,175-1,245/tonne FD NWE for solid. PA essentially followed the lead of OX, which rolled over from August at €945/tonne, FD NWE.

"There are no problems with availability," commented an OX buyer, "and we are only taking minimum quantities because of our decreased [PA] capacity."

"The market is balanced to long," the OX producer said, "but demand should improve coming from a seasonally low level."

Some OX buyers, concerned that weakening macroeconomic conditions would lead to lower prices in the fourth quarter, were purchasing on a just-in-time basis and reducing inventory levels.

PA prices did not rise, despite production problems and planned maintenance work.

Swedish specialty chemicals producer Perstorp stopped production at its 35,000 tonne/year PA plant in Nol, Sweden, for three weeks of planned maintenance on September 6. The plant was scheduled to restart on September 20.

Austria-based Atmosa Petrochemie's 50,000 tonne/year PA plant in Schwechat, Austria, was running at 60-70% of capacity after technical problems were encountered during a restart after a six-week regulatory inspection that began in May.

Operating rates were being gradually increased and the plant was expected to return to full production by the end of September, a company source said.

Additional reporting by Quintella Koh in Singapore, Mark Victory in London and Sam Weatherlake in Houston

By: Clay Boswell
+1 713 525 2653

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