25 January 2013 04:39 [Source: ICIS news]
By Hazel Kumari
SINGAPORE (ICIS)--Spot isomer-grade xylene prices in Asia have declined by about 5% since the year started and may continue to fall, with demand recovery in the downstream textile industry unlikely to happen any time soon, market sources said on Friday.
Offers for February cargoes this week were at $1,353-1,400/tonne (€1,015-1,050/tonne) FOB (free on board) Korea, down from 1,450-1,480/tonne in the first week of January, they said.
Market players have started offloading cargoes at lower prices this year after spot demand failed to pick up as hoped following the start-up of a big downstream paraxylene (PX) plant in South Korea.
In December, a handful of regional traders had procured large volumes of isomer-grade xylene for January and February loading, believing that isomer-grade xylene supply will tighten further upon the commercial start-up of Hyundai Cosmo (HC) Petrochemicals’ paraxylene (PX) unit.
The facility would require around 960,000 tonnes/year of feedstock to run at 100% capacity, amounting to a shortage of about 55,000 tonnes/month of isomer-grade xylene.
At least three February cargoes were bought at $1,365-$1,395/tonne FOB Korea in December.
However, HC Petrochemicals – a 50:50 joint venture between Japanese refiner Cosmo Oil and South Korea’s Hyundai Oilbank – procured its feedstock through contracts from other suppliers. Thus, the regional traders had to offload their large inventories into the spot market.
Buying interest has been weak since the start of the year since end-users are sufficiently covered in their isomer-grade xylene requirements, market sources said.
The volatile downstream PX and purified terepthalic acid (PTA) markets are also adding to the bearish isomer-grade xylene price outlook, causing players to retreat to the sidelines, they said.
“Many players believe that the isomer-grade xylene prices have hit rock bottom,” a South Korea-based producer said, citing bullish factors that include tight PX supply and strong PTA capacity expansion.
“On the other hand, we have to take into consideration the bearish sentiment [derived] from a weak [downstream] polyester sector,” the producer added.
“The Chinese textile producers have plans to shut their plants during the week-long Lunar New Year holiday and there were talks of the shutdowns to continue even after their return. The expansion of feedstock PTA plants would result in a slew of cargoes available, upsetting the demand and supply balance,” the producer said.
The Lunar New Year holiday will be celebrated in China on 9-15 February.
Some market players are optimistic that demand for isomer-grade xylene will return in the second half of February because of restocking activity that usually occurs after the holiday.
But China’s PTA plants without fully integrated facilities may have to halt production because of negative margins, and as demand for textile is expected to remain low in the first quarter, market sources said.
Most textile producers were looking to keep their inventories lean in order to cut costs, they said. With fewer polyester units in operation, there will be more availability of feedstock PTA that translates to a surplus of feedstock PX.
($1 = €0.75)
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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