By Malini Hariharan
Paraxylene (PX) is one of the few petrochemicals to have a contract price recognized all over Asia. However, the Asian contract price (ACP) mechanism which has been in use for over ten years continues to court controversy.
The ACP, a monthly settlement that is negotiated by a handful of large producers and buyers, figures in most contracts across the region.
The entry of new players has often brought forth questions on its relevance. Doubts have also cropped up when contract prices have failed to keep pace with spot numbers. And its demise has been regularly predicted.
In a recent report on ICIS news, my colleague Bohan Loh points out that a fresh debate is brewing even as buyers and sellers near the conclusion of negotiations for 2011 contract volumes. Questions are once again being raised on the relevance of 'an age-old system' that is seen as not fully reflecting feedstock costs and profitability of downstream players.
ExxonMobil, a large producer of PX and a key player in the monthly ACP settlement, has proposed the introduction of a spot-price element in its 2011 contracts. The proposal is for 70% ACP and 30% spot cfr Taiwan instead of 100% ACP.
Only one buyer is said to have accepted this revised formula.
Some players interpreted the move as a sign that the company is looking for higher numbers in 2011 to recoup losses this year.
Others believed that it signaled ExxonMobil's loss of faith in the ACP.
However, it is also likely that the company is only moving towards the most common formula in Asian contracts - 50% ACP and 50% published spot cfr Taiwan prices.
The formula shows that there is a need for the stability that only a contract number can provide.
Despite the many controversies the ACP is a popular benchmark and is unlikely to lose this status.