28 June 2013 09:56 [Source: ICB]
Orthoxylene (OX) is the second largest of the three commercial isomers of xylene. The majority of OX is used to make phthalic anhydride (PA), to manufacture flexible polyvinyl chloride (PVC) and unsaturated polyester resins and alkyd resins.
Minor uses of OX include solvent applications, soya bean herbicides, bactericide lubricant additives and polyethylene napthalate.
Demand for spot cargoes from the PA sector has been stable-to-weak on the back of poor margins in the downstream sector for the first half of 2013.
Buying appetites were hampered by bleak macroeconomic conditions in the US, Europe and China. Consequently, several PA producers in South Korea and China reduced operating rates as market sentiment was dragged down by concerns of a weakening global economy and negative margins.
Most South Korean producers were relying on contractual volumes to fulfil production requirements. Operating rates at Chinese PA facilities were heard to be hovering at 50-70% for the first half of 2013, alleviating the initial tight supply situation seen going into the year. Tightness was a result of producers reducing their OX operating rates, in favour of more lucrative co-product paraxylene (PX) production.
Several end-users have installed catalysts in an attempt to minimise production costs by enabling the facilities to utilise either OX or naphthalene as feedstock.
In the second quarter of 2013, high feedstock mixed xylene costs and volatile PX prices have led some producers to boost OX rates, where margins are better.
Prices are affected by the margins in downstream PA and co-product PX markets, as well as feedstock isomer-grade xylene prices.
Spot prices on a CFR NE Asia basis hit a record high in February at $1,620-1,640/tonne CFR China Main Port on restocking activities as Chinese end-users returned to the market from their Lunar New Year holidays amid a tight supply market.
However, prices started a five-week decline in the month of March, tracking price trends in isomer-grade xylene and PX sectors. In addition, the tight supply situation eased as a handful of regional producers started increasing OX production to counter the decline in co-product PX margins.
PA makers were procuring on an as-needed basis, retaining lean inventories.
OX is derived from the production of mixed xylenes, which involves the high-severity catalytic reforming of naphtha.
From this comes a C8 stream containing orthoxylenes, methaxylenes and paraxylenes, as well as ethylbenzene.
Xylenes are also obtained from the pyrolysis gasoline (pygas) stream in a naphtha stream cracker and by toluene disproportionation (TDP). The xylenes are passed through a splitter where the bottom stream, with a targeted amount of OX, is sent to a distillation column to produce high-purity product.
The outlook for Asia OX is uncertain as several PA makers have installed or are installing catalysts in plants to enable them to use alternative feedstock, market participants said.
Downstream demand is slow and weak economic conditions in China will put downward pressure on OX prices for the third quarter of 2013. Prospects for recovery in demand from the PA sector look bleak, as it is heavily dependent on the construction industry.
However, a stable-to-tight supply situation would cap declines in prices. In June, a South Korean producer had reduced the run rate at its OX facility from 90% to 60%, suspending sales of OX cargoes in the spot market.
In addition, a handful of producers have said they might also reduce rates in anticipation of further weakening in spot prices.
Several Chinese end-users said their reliance on imported material might decrease on the back of Dragon Aromatics' expected start-up of its first line by the end of June/early July, and its second line in August.
Dragon's aromatics facility in Fujian has a nameplate capacity of a total of 1.6m tonnes/year of PX and 240,000 tonnes/year of OX.
Jurong Aromatics is building a complex in Singapore. Upon completion in early 2014, it will produce almost 1.5m tonnes of aromatics, comprising 800,000 tonnes/year of PX, 200,000 tonnes/year of OX and 450,000 tonnes/year of benzene.
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