By Malini Hariharan
Paraxylene (PX) markets are on a roll. Prices have risen by 20% since the beginning of the year and were assessed at around $1,620/tonne cfr Asia late last week by ICIS pricing.
One contract nomination for March was out yesterday with JX Nippon Oil proposing a $110/tonne increase to $1,730/tonne cfr Asia.
The opening of the East-West arbitrage window has fuelled Asian markets. Plant problems in the US and Europe could create room for as much as 50,000 tonnes of Asian product.
European spot PX prices moved towards record levels last week despite a number of force majeure declarations in the downstream purifited terephthalic acid (PTA) industry. Buyers were said to be willing to pay as much as $1800/tonne for spot PX.
Besides the arbitrage factor, Asian markets were also propped up by unconfirmed reports of a possible delay in the start up of S-Oil's new 900,000 tonnes/year plant. The plant was expected to start at end-March but this could be delayed by two months, said market players.
However, action in the Asian PTA market was muted last week as a fall in futures prices on the Zhengzhou Commodity Exchange dampened sentiment. There were also concerns about the impact of the Chinese government's efforts to tighten liquidity. Labour shortages in the coastal regions had also affected the textile sector and polyester margins were under pressure from high input costs.
Additionally, around 1.5m tonnes/year of Chinese polyester capacity scheduled for maintenance shutdown from 10 February to 10 March which would further hit PTA demand.
But these could be temporary factors as cotton prices continue to remain firm.
In a recent report, analysts at UBS Investment Research noted that cotton prices have risen by 30% so far this year and were expected to remain strong at least until the next harvest season in late Q3 2011.
The analysts were bullish for the entire polyester chain and have revised their spread forecasts for the year.
The average PX-naphtha spread has been raised to $550/tonne from the earlier estimate of $370/tonne. The PTA-naphtha spread has been raised by nearly $100/tonne to $605/tonne while the ethylene-monoethylene glycol (MEG) spread was expected to reach to $350/tonne in 2011, up from the previous estimate of $190/tonne.
"We see limited new capacity coming on stream in 2011-12 for PX and MEG. And with the strong downstream demand, spreads are likely to remain robust in the next one to two years," they noted.