Europe PX market struggles with Asian bullishness in Q1

LONDON (ICIS)–Continued price increases in line with Asia, despite weak domestic demand, have left many in the European paraxylene (PX) market frustrated, sources said on Tuesday.

“It is really having a negative impact on demand here in Europe,” said one major buyer. “The market is different to Asia, so it shouldn’t follow the ACP [Asian Contract Price].”

Several European consumers said that while there has been some inventory rebuilding so far in 2013, it is still unclear whether PX demand will see any marked improvement. 

One buyer described January offtake as similar to the same period last year, but was still uncertain about whether the market would see any major upturn in the first quarter.

The February Europe PX contract was agreed at €1,260/tonne ($1,680/tonne) on a free delivered (FD) northwest Europe (NWE) basis, up €15/tonne from the January number, itself a €40/tonne increase from the previous month.

The uptrend has been driven by higher prices in the Asian market, where a $60/tonne increase for February was seen. January was agreed at $1,625/tonne CFR (cost and freight) Asia, an increase of $75/tonne from the December settlement.

Sources said that Asian derivative demand has picked up this year, as several purified terephthalic acid (PTA) units have come on line. Asia’s PTA capacity is expected to reach 69m tonnes/year in 2015, a 60% increase from 43m tonnes/year in 2011. Bullish energy costs have also supported the general uptrend.

While there has been an attempt in Europe to balance out the Asian influence on price developments with a consideration of domestic market dynamics, many consumers still feel that any upward price movement is detrimental to any recovery in demand.

With the Asian market likely to tighten in March as polyester offtake improves, there are already some European players that are predicting more domestic price increases next month.

The European market has fundamentally different demand dynamics and even production economics compared with Asia, with Asian producers utilising the gasoline production path as opposed to naphtha.

Additionally, many contracts in the region are based on a 50/50 split between the monthly settlement number and spot quotes, in a far more liquid merchant environment than Europe.

European spot activity is largely negligible by comparison. The key buyers remain covered by contracted volumes, and many producers will opt to ship any excess volume to Asia to keep supply levels balanced.

It is this lack of liquidity that makes it very difficult for European players to accurately gauge a domestic market price for PX. One aromatics trader said that players will often look at the Asian market then subtract freight costs as a yardstick for European pricing.

Buyers argue that the number should be below the contract number to entice purchasing, but with no significant appetite for volumes outside of contractual business, sellers believe that there is no real incentive for them to drop prices to gain sales.

One producer added: “If the [European] price falls too far below the Asian market, it makes sense for sellers to move material out of Europe into Asia. Asia minus freight acts as a floor for the European spot price.”

($1 = €0.75)