Intermediates: PA market remains difficult in Asia and Europe

02 April 2012 00:00  [Source: ICB]

High inventories, weak demand and tumbling prices have intensified the already enormous pressure on Asian producers of phthalic anhydride (PA), but those still on their feet can take solace in the softening outlook for feedstock orthoxylene (OX). In Europe, PA supply has been tight and prices have been high, while in the US, prices have been rising with OX.

PVC pipes, © Pam Broviak

 © Pam Broviak

The onset of peak construction season is boosting demand for phthalate plasticizers in Europe

During the week ending March 23, the Asian market for PA was quiet, with price uncertainty suppressing buying interest. ICIS assessed spot prices in China at $1,500-1,520/tonne (€1,140-1,155/tonne) CFR (cost and freight) CMP (China main port), unchanged from the week before. In southeast Asia (SE Asia), prices fell by $20/tonne at the bottom of the range and $10/tonne at the top to $1,600-1,630/tonne CFR. OX prices continued their slide, dropping by $20-50/tonne week on week in northeast Asia (NE Asia) to $1,560-1,570/tonne CFR. In southeast Asia, OX values fell by $10-20/tonne to $1,570-1,590/tonne CFR.

A ROLLER COASTER RIDE

The trend reverses a run-up that began in early December, when rocketing OX prices sent Asia PA producers scrambling to minimize losses. Demand for OX had not increased, but supply was being squeezed by growing demand for paraxylene (PX) from the polyester supply chain. PX and OX are closely related structural isomers, and they compete for the same feedstock, mixed xylenes.

Weak demand for the major products downstream of PA - phthalate plasticizers, unsaturated polyester resins and alkyd resins - severely undermined the ability of producers to pass along the increased cost of OX. Several shut down, and many others reduced operating rates by half. Despite these measures, PA prices could not keep up with OX, and they began to slip during the week ending February 10. OX followed.

Market sources do not expect OX prices to firm until PA recovers. With polyester inventories high, demand for purified terephthalic acid (PTA) and its feedstock PX is weakening, reducing the pressure on OX and softening prices.

PA demand typically improves in March, when production downstream gears up after the Lunar New Year holiday, but the recovery has been weak this year, say market players. According to a Chinese producer of the plasticizer dioctyl phthalate (DOP), producers in north China have shut their plants because of weak demand. High inventories in China are aggravating the situation, according to market participants, who say that producers reluctant to sell in previous months must now sell at even lower prices.

"The current PA prices show a lack of confidence from PA market players," one source said.

EUROPE REMAINS STRONG

In Europe, the situation is different. OX prices continue to climb, and with peak season for the automotive and construction end markets drawing near, PA prices are at record highs. Supply is tight, and buyers are trying to source as much volume as possible to ensure supply and to anticipate further feedstock price increases in April.

Asia PA US PA

Participants in the market do not expect the pressure to ease until May. Macroeconomic conditions have weakened PA demand somewhat, but production has been limited by tight OX supply. Flake availability has been particularly low because of high buying interest in the Middle East. Typically the Middle East buys from China, but product there is tight and Middle Eastern players are increasingly turning to Europe to cover volumes. Logistical issues prohibit the export of liquid material.

During the week ending on March 23, buying activity was thin as market players waited for the April OX contract price settlement. PA spot prices were assessed unchanged week on week, with liquid material at €1,400-1,430/tonne FD (free delivered) NWE (northwest Europe) and flake at €1,430-1,480/tonne FD NWE.

March PA contracts were assessed €70/tonne over February, setting a record high of €1,425-1,455/tonne FD NWE for liquid and €1,360-1,430/tonne FD NWE for flake. March OX contracts established the pace by increasing by €70/tonne over February to a record €1,130/tonne.

EU PASome sources expect increases of €30-50/tonne in April because of tight supply, while other sources predict a rollover because of falling Asian xylene numbers. Downstream, DOP spot prices in Europe rose by €10/tonne to €1,580-1,630/tonne FD during the week ending on March 23 on market tightness, with the highest values heard in the UK and the Mediterranean.

A producer said offers below €1,600/tonne are likely to disappear from the northwest European market by the end of March.

Although production rates have improved, the European market for DOP is likely to remain tight through April because of low inventory levels in both the DOP and upstream oxo-alcohols markets.

INCREASES IN US

US PA March contracts increased by 7 cents/lb in line with the US OX February contract, according to industry sources.

The March contract for molten-grade PA was assessed by ICIS at 85-92 cents/lb, while flake-grade was assessed at 86-93 cents/lb.

PA contracts typically reflect the previous month's OX price, which settled at 69 cents/lb in February, up by 7 cents/lb from January.

  • Includes reporting by Su Yeen Cheong and Lina Xu in Singapore, Mark Victory in London, and Blanca Venegas in Houston

By: Clay Boswell
+1 713 525 2653



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