S Korea’s GS Caltex concludes isomer-grade xylene term negotiations

SINGAPORE (ICIS)– South Korea’s GS Caltex, a major isomer-grade xylene producer, has concluded term negotiations with a majority of its buyers at a premium of $4/tonne beginning in January, according to market sources on Thursday.

GS Caltex allocates approximately 250,000-300,000 tonnes/year of its 1.5m tonnes/year production for contractual obligations and the remaining goes into captive use. Most of the term buyers were heard to be trading companies.

The new term premiums on a free on board (FOB) Korea basis are significantly lower as compared to $8-9/tonne premiums seen for January-December 2014 period, sources said.

With the current weakness seen in the upstream crude and naphtha markets, most buyers were looking for a reduction in premiums.

“With the drops in crude futures and naphtha prices, we don’t have much confidence for 2015. As such, we were looking to lower our premiums for all aromatics products for next year,” a northeast Asia based trader said.

“In October, [isomer-grade xylene spot] prices have dropped below $1,000/tonne FOB Korea and we thought it wouldn’t go below $900/tonne FOB Korea. By mid-December, prices have already dropped below $600/tonne FOB Korea. There is no bottom anymore,” according to a second northeast Asia-based trader.

Market participants attributed the huge drops seen in the last quarter of 2014 to the collapse in the crude market, upstream naphtha values and downstream paraxylene (PX) and purified terephthalic acid (PTA) sectors.

They added that losses accelerated in recent weeks as weak market conditions in the overall polyester chain were exacerbated by the slowdown in the global economy and volatility in the crude market.

With Brent crude futures easing below $60/bbl, buyers grew increasingly cautious as they were concerned that isomer-grade xylene prices would continue to fall amid plentiful regional supply and persistent bearish downstream conditions.

In December, several downstream PX plants had lowered their operating rates or maintained low production output to cope with the supply overhang amid weak downstream PTA demand. This has curbed buying interest for feedstock isomer-grade xylene cargoes.

“Demand has yet to catch up with supply. There are a lot of PX units that are running at lowered operating rates with some units idled. These PX producers have a lot of feedstock that they are not using and instead, are selling to the spot market,” said a northeast Asia-based trader.

In South Korea, Ulsan Aromatics has been operating its 1m tonne/year PX unit at 60-65% since 1 December.

Samsung Total was also currently running its plant at 90% of its nameplate capacity.

SK Global Chemical (SKGC)’s 1.3m tonne/year PX unit in Incheon might cut operating rates to 70% in January.

South Korea’s other isomer-grade xylene major producer SKGC, was heard still in discussions for its 2015 contractual volumes.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections