Asia isomer-grade xylene supply to remain tight into November

Focus article by Hazel Kumari

SINGAPORE (ICIS)–Isomer-grade xylene supply in northeast Asia is considered short amid a spate of plant turnarounds in the region, with prices for October and November-loading cargoes expected to be stable-to-firm, market participants said on Tuesday.

On 10 October, regional prices were assessed at $706/tonne CFR (cost and freight) NE (northeast) Asia, according to ICIS data.

Spot availability for November was deemed tight despite the expected start-up of Hyundai Chemical’s new 1m tonne/year plant in Daesan, South Korea.

Most plants in northeast Asia have scheduled turnarounds between from September and to end-October. Upon restart of their plants, most producers were shoring up inventories and have no cargoes available for the spot market.

In Japan, supply was curtailed by a heavy turnaround season, with three main aromatics plants shutting from September to early November.

JX Nippon Oil & Energy’s 380,000 tonne/year plant in Negishi is undergoing routine overhaul for 30-45 days from end-September, while Cosmo Oil’s 300,000 tonne/year plant in Yokkaichi is due for a month-long turnaround from mid-October.

Idemitsu Kosan’s 317,000 tonne/year Tokuyama unit, meanwhile, has been shut since 10 September for maintenance and is due to resume operations in November.

“We are unable to get any additional volume from Japan even though we had requested for one or two more cargoes to make up our shortfall,” said a Japan-based trader.

In the last 12 months, Japanese producers had increased their isomer-grade xylene exports to South Korea, Taiwan and China due to fledging consumption brought on by a stagnation in the domestic economy.

Japan’s economy, the world’s third largest, has faced strong headwinds in recent decades. The government’s aggressive monetary and fiscal stimulus measures have so far failed to increase wages growth, boost consumer spending and lift inflation.

Its ageing population – Japan has the highest proportion of people over 65 in the world – has constrained the government’s ability to stimulate consumer demand and expand the workforce.

As a result, the overall petrochemical market was deemed oversupplied, encouraging producers to look at capacity adjustments, mergers and increased export sales in 2016.

“With the merger concluded and expected to start next year, we would be able to reduce our fixed costs by closing the non-lucrative older plants while increasing output at the others to maintain a balanced aromatics market,” said a major Japanese aromatics producer.

A second Japanese aromatics producer said: “It is extremely crucial we keep our competitive edge, especially now that China is looking to become more self-sufficient, expanding their current plants and building new ones such as Ningbo Daxie.”

In South Korea, supply and demand fundamentals were described as balanced-to-slightly tight despite the ongoing maintenance at two major isomer-grade xylene plants. End-users had planned their maintenances to coincide with the upstream isomer-grade xylene plants to reduce their spot requirements amid snug supply.

“I have been looking to cover my November short but there are no physical cargoes available. Everyone has been saying that the market is definitely long since Hyundai Chemicals is starting up but it doesn’t seem to be the case,” said a South Korea-based trader.

Despite the downtrend in downstream paraxylene (PX) prices, most South Korean players said feedstock costs were still largely stable-to-slightly firm due to the reduction in spot supply as producers were looking to rebuild inventories after completion of plant turnarounds.

“We won’t have any spot cargoes available until mid-end November once [our] plant is restarted as we still have to provide to our contractual customers first,” said a South Korean-based producer.

Most players polled agreed that market fundamentals are unlikely to change despite the start-up of Hyundai Chemical’s new 1m tonne/year isomer-grade xylene plant in Daesan.

“Hyundai Chemical’s starting commercial operations by early November which should lengthen or at least alleviate the current tight supply. But, as we can now see, there are just too many maintenances going on in South Korea and Japan which is the reason prices had also been climbing for isomer-grade xylene,” added the producer.

Regional demand for October and November is expected to improve as several traders and end-users were heard sitting on short positions.

In Taiwan, isomer-grade xylene supply was disrupted by a technical issue at CPC Corp’s No 4 cracker in Linyuan which prompted the producer to shut its aromatics unit at the same location for a 10 day maintenance starting 6 October, according to market sources.

Its No 6 aromatics unit was also shut on 1-2 October for a scheduled maintenance of 40-45 days, in line with the turnarounds at upstream facilities, to repair damages sustained when Typhoon Meranti struck Taiwan in September.

A key Taiwanese end-user returned to the spot market seeking additional volumes to plug the lowered contractual volumes for October and November, causing a snowball effect. Traders also flocked to the open trading arena to cover their November short positions.

“I had sold two cargoes to FCFC [Formosa Chemicals & Fibre Corporation] for second-half October and early-November loading. They are seeking more cargoes due to the shutdown at CPC,” said a northeast Asian based producer.

In China, cargo availability for October was reduced due to ongoing/impending plant turnarounds and firm demand from the gasoline blending and PX sectors.

Sinopec-SK Wuhan would be shutting its 56,000 tonne/year of MX line based in Hubei provinces from 17-20 October to rectify a problem at the unit’s heat exchanger.

Supply for October was reduced further as Sinopec Jinling Petrochemical’s restart date had been delayed as a fire erupted at a reformer at the site on 9 October.

The reformer – which has the capacity to produce 290,000 tonnes/year of xylene and is integrated with a downstream PX facility – was shut for turnaround in August and was in the process of restarting when it caught fire, industry sources said.

Furthermore, polyester makers were in their last manufacturing push ahead of the yearend season, which had increased demand for upstream PX and isomer-grade xylene cargoes. Aromatics producers with integrated PX plants were keeping their isomer-grade xylene for captive uses, industry sources said.

Other major petrochemical producers were diverting their isomer-grade xylene production to the gasoline blending pool instead of extraction for the downstream PX consumption due to  better demand and prices.

“Toluene prices had seen a great spike in the last few weeks because of the high demand from gasoline blenders. It has reached levels [price-wise] where it does not make sense for the gasoline blenders and they are seeking cheaper alternatives like MX [mixed xylenes],” said a South Korean trader.

Previously, Chinese import demand for isomer-grade xylene was limited by a surplus of cargoes available in the domestic market and large fluctuations in the yuan against the US dollar exchange rate.

On 10 October, discussions for isomer-grade xylene were at yuan (CNY) 5,900-6,000/tonne ex-tank in eastern China and at CNY5,900-5,975/tonne ex-tank in southern China. On an import parity basis, the prices were equivalent to $737-749/tonne and $737-746/tonne, respectively.

China’s domestic prices are currently higher than CFR NE Asia prices by $31-43/tonne.

“This year, the Chinese traders have been so quiet but they finally returned to the spot market in end-September because of surging domestic prices,” the South Korean trader said.

“Domestic MX prices had increased to the point that it’s higher than the CFR NE Asia market and already three to four cargoes are heading to east and south China,” he added.