22 March 2013 03:38 [Source: ICIS news]
By Hazel Kumari
SINGAPORE (ICIS)--Asia’s orthoxylene (OX) spot prices have fallen for five straight weeks, suppressed by bearish sentiment in the upstream energy and co-product paraxylene (PX) markets, market players said.
The prevailing frail conditions in the derivative phthalic anhydride (PA) sector and macroeconomics in the US, Europe and China have exerted downward pressure on OX prices, they said.
Operating rates at most regional OX facilities were reduced last year to focus on the more lucrative PX production. This has resulted in a tight OX supply in the region, causing OX prices to remain above $1,400/tonne (€1,078/tonne) CFR (cost & freight) China since August 2012.
Availability of prompt to April-loading cargoes remained scarce, with about only three cargoes available in the market, but traders were unwilling to lower their offers to below $1,500/tonne CFR China, according to a market source.
Deep-sea cargoes from Europe and the US are not available as high shipping costs make the Europe and US/Asia arbitrage unworkable. Also, downstream players are hesitant to purchase deep-sea cargoes because of the uncertainty in arrival dates.
Despite the scarcity, end-users are taking a wait-and-see approach, unwilling to procure fresh shipments in anticipation of further weakening in prices, and tracking price trends in feedstock isomer-grade xylene and co-product PX.
Several PA producers have reduced operating rates to 50-70% capacity, while others have moved forward the maintenance schedules for their plants in a bid to cut losses as high feedstock OX prices and poor downstream demand pushed earnings into the negative.
However, one of the biggest PA producers in China said they are still operating at full capacity as reducing would increase production costs.
“Despite poor PA demand, we are unable to lower operating rates as our capacity is too big. The more we produce, the cheaper the product is,” said a company source.
“The market outlook for 2013 is terrible. With China government’s property cooling measures kicking in soon, there has been little construction of new developments,” he added.
Some players predict that the OX price will not be sustained at the current levels at above $1,500/tonne CFR China because PX prices had tumbled by more than $105/tonne in the past three weeks, narrowing the margin gap between OX and PX.
Many end-users forecast that OX prices are likely to continue the downtrend if the weak sentiment in the feedstock and co-product markets persists.
In addition, production cuts at several downstream facilities will cap the need for fresh materials, easing the tight supply situation, market participants said.
($1 = €0.77)
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