21 June 2013 09:52 [Source: ICB]
Orthoxylene (OX) is the second-largest of three commercial isomers of xylene. Nearly all OX output is consumed in the manufacture of phthalic anhydride (PA). PA has three major applications: as phthalate plasticisers used in compounding polyvinyl chloride (PVC); in unsaturated polyester resins (UPRs) for glass-reinforced thermoset engineering applications; and in alkyd resins used for surface coatings.
Smaller outlets for OX are in solvents, though that is declining, and in bactericides, soybean herbicides and lube oil additives. A newer outlet is in the production of polyethylene naphthalate (PEN) polymer.
The supply of OX is stable, with very few production issues, market sources said.
At the end of 2012 and the start of 2013, market players were monitoring severely low water levels in the Mississippi River, which caused concern about potential barge delays of raw materials, including OX. The river was at risk of being closed because of drought in the Midwest keeping water levels dangerously low. In the end, the river was not closed, though there were shipping delays. PA producers said they were generally fine and did not experience loss of feedstock supply.
OX demand is tied to downstream PA, where demand is balanced, though soft.
PA consumption is largest in the downstream PVC market, whose major outlets include housing and construction. Construction of new houses in recent months has not shown much improvement, despite published reports of a housing market recovery.
Market sources said that, due to a still depressed US economy, consumers are not so much building new homes as they are buying homes already built. Lack of new home construction has stemmed demand for new orders of PVC, and, consequently, upstream PA and feedstock OX. Demand was steadied by the downstream UPR sector, the second largest consumer of PA. The US UPR market's peak season is from March to June.
Producers of alkyd resins, the third-largest consumer of PA, have shown declining demand for PA from limitations put on the level of volatile organic compounds that can be used in surface coatings, an end-use market for alkyd resins. This has led to a switch to water-based and powder coating technologies.
OX monthly contract prices have been steady to soft since the start of this year, after a 6-cent/lb ($132/tonne, €99/tonne) jump in December 2012 to January 2013.
A mix of price rollovers and declines during the first half of the year was in line with overall declining price trends in raw materials and co-xylene products in Asia.
The US market typically bases its price negotiations on trends in Asia. In June, the US OX contract price was fully settled down by 1.5 cents/lb to 63 cents/lb free on board (FOB), which reversed much of the 2-cent/lb increase in the contract price in May.
OX spot prices have been stable to soft since the start of this year on a notional basis. US OX spot prices are based on the trends in Asian OX spot prices.
In the week ending 14 June, US OX spot prices were at 60-61 cents/lb FOB for the second week in a row. That spot price range is down from 61-62 cents/lb FOB in the last two weeks of May.
OX comes from the production of mixed xylenes, which involves the high-severity catalytic reforming of naphtha. From this, a C8 stream contains ortho-, meta-, and paraxylenes, as well as ethylbenzene (EB). Xylenes are also obtained from the pyrolysis gasoline stream in a naphtha steam cracker and by toluene disproportionation. The xylenes are passed through a splitter, and the bottom stream, which contains a targeted amount of OX, is sent to an OX distillation column to produce high-purity product.
Because OX comes out of the refining process with mixed xylenes (MX), it is affected by price movement in that market. Price movements of toluene and benzene also affect OX, as they come out of the gasoline stream with MX. OX contract prices are typically settled in relation to MX prices.
Activity in the US MX market has been slow overall in June as it moves into the summer driving season. Similarly, the MX markets in Europe and Asia have been declining on weak buying activity.
Meanwhile, US PA is expected to face the challenge of an emerging trend where plasticiser makers are looking to replace PA with more environmentally-friendly feedstocks, market sources said.
Some plasticiser makers are said to be switching to green chemistry-based feedstocks, which could have an impact on PA demand. As PA demand declines, so would demand for OX.
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