Asia PX-PTA spread surges to $100/tonne, but looks short-lived

Paul Lim

06-Apr-2016

PX PTA Polyester Thread

SINGAPORE (ICIS)–The spread between feedstock paraxylene (PX) and end-product purified terephthalic acid (PTA) in Asia surged to $100/tonne this week, but market sources said on Wednesday it was not going to last long as energy prices rebounded.

The PX-PTA spread typically lingers at the $65-75/tonne level, below breakeven levels for PTA producers, which typically target spreads of at least $90-110/tonne for comfortable margins.

The Asian PX-PTA spread surged to $100/tonne on 5 April, as falling PX prices caused margins to improve for the downstream PTA makers.

“The margin of $100/tonne is excellent. It provides some much-needed respite for PTA producers,” a seller said.

PX prices dropped by $21/tonne on 5 April to end at $785-787/tonne CFR (cost & freight) China and/or Taiwan, tracking dips in naphtha prices, which ended at $370-372/tonne CFR Japan.

However, PX prices are likely to rebound, and that would erode the spread ultimately, the sources added.

On Wednesday morning, PX prices rose, tracking upstream crude and naphtha values, with offers at $805/tonne CFR China and/or Taiwan, with no bids seen yet.

Naphtha prices have been tracking crude oil prices closely, which have been volatile on alternatively bullish and bearish sentiments, mainly caused by release of inventory data and comments by Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers about freezing or cutting production levels.

The falling upstream energy prices have not had as much as an impact on downstream PTA, which has shown a rare sterling performance in the past week.

PTA prices have stayed firm on the back of strong demand from downstream end-users in the polyester industries, such as yarns and fibre producers, as well as PET bottle-chip manufacturers.

“Margins for PET manufacturers have been better recently, as seasonal demand has been strong,” a source in east China said.

PTA’s CFR China marker has climbed continually to end at $610-627/tonne CFR China Main Port 5 April, up from $595-600/tonne 17 March. Discussion levels remained stable on 6 April morning.

These buyers have constantly been sourcing for PTA cargoes in the past weeks, and paying premiums for both CFR China and ex-China Main Port (one-day trip) cargoes.

They have been running their plants at high rates due to the strong seasonal demand, with fiber producers running at 70-75% overall operating capacity, and PET producers running at 80-85% overall operating capacity.

The demand is expected to last at least until June, before it starts to taper off and the third quarter of the year starts to creep in.

Operating rates for the polyester chain in China are expected to drop between August and September, as the country starts to clamp down on pollution for the G20 meetings to be held in east China in September. Demand is also expected to decrease.

The wide spread could continue in the near-term, as end-users are expected to continue looking for cargoes. Sellers are also holding off on offering fixed prices for import cargoes, preferring instead to wait out better prices.

Numerous turnarounds for PTA plants in the region, including Formosa Chemicals & Fiber Corp Ningbo’s 1.2m tonne/year line and the delayed restart of Hanbang Petrochemical’s 2.2m tonne/year PTA line in Jiangyin are also supporting prices.

Market sources said sellers had also over-sold cargoes into the futures market previously, and are presently running at high rates to recover production levels.

Major producers such as Yisheng Petrochemical, Hengli Petrochemical and BP Zhuhai are running their lines at optimum rates to keep up with downstream demand.

Demand from outside of northeast Asia is also strong, with buyers in southeast Asia and the Middle East looking for PTA cargoes on account of shutdowns at Malaysia’s RP Chemicals in Pahang, and at Indian Oil Corporation’s unit in Panipat.

There are more turnarounds planned for major PTA plants in east China in the second quarter.

PX is an aromatic feedstock used in the production of PTA, a white powder which is in turn used to produce polyester products such as fibers and bottles, as part of the polyester and fiber intermediates chain.
PX-PTA Spread 5 April Asia
Photo (top): Reels of polyester thread. PX and PTA are key materials used in the production of polyester. (Source: PhotoAlto/REX/Shutterstock)

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

Focus article by Paul Lim

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