Make hay while the sun shines

By Malini Hariharan

The petrochemical industry is all about making the most of unexpected developments and that is what we are seeing in paraxylene (PX) and purified terephthalic acid (PTA) markets.

Led by polyester, PX and PTA prices have risen to levels last seen in 2008. And polyester has been benefiting from a run up in cotton prices, which had hit a 140-year high last week.

The recent market developments have been welcomed by producers of PX which has been structurally long this year and hampered producers’ efforts to raise prices improve margins. But PX-naphtha spreads have finally risen to over $450/tonne from around $250/tonne last quarter.

“PX producers are at last getting a piece of the profit; it is finally tight,” said Leonard de Guzman of Dewitt & Co.

Operating hitches at PX facilities of CNOOC Kings, Fujia Dahua and Oman Aromatics, along with a reduction in Iranian exports following the country’s decision to feed reformate straight to gasoline production tightened Asian PX supply at a time when PTA and polyester plants were running flat out.

Meanwhile, Chinese PX plants were running at reduced rates of 70-80% in August and September, forcing some buyers to seek imports, thereby pushing spot prices higher.

“People were caught off guard by the prices and demand seen in October. All of a sudden there was a newsflash that cotton was too expensive and that substitution demand for polyester would increase; everyone has been rushing to buy,” explained de Guzman.

He added that polyester was completely driven by cotton with buyers deciding between paying $1,900/tonne for polyester or $3,000/tonne CFR China for cotton.

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With cotton still running high there should, on paper, be room for further price hikes along the polyester chain. However, market players said the outlook was hazy.

The tightness in PX supply was expected to ease by the end of this year, knocking off an important support to spot prices.

“The original expectation was that cotton prices would fall in Q4 and drag down PX and PTA prices; so PTA producers delayed turnarounds to this quarter which would result in lower demand for PX,” pointed out de Guzman.

The shutdowns at PTA plants would tighten supply of the material, while demand was expected to spike as nearly 1.2m tonnes/year of new polyester capacity came on stream in China during August-September. By the end of the year, China’s total polyester capacity was projected to grow 8% to 28m tonnes/year.

But de Guzman did not see room for much improvement in the polyester market as producers continued to ramp up production to maximize profits.

“The issue is that margins are so huge that producers are running above nameplate capacity; stocks are building up and after a while producers will start competing by either cutting prices or cutting operating rates.”

He also pointed out that polyester buyers were resisting paying higher prices.

Further downstream, Chinese textile factories were also reluctant to accept spikes in costs of cotton and polyester.

Transaction volumes at the China Textile City had dropped to 5.3-5.5m meters/day last week, down from 6.5-6.7m meters/day in mid-October.

They have slowed down purchasing because price increases of end-products cannot catch up with the jumps in raw material costs, said a Chinese polyester maker.

With resistance creeping in there is a real danger of an early end to the recent PX/PTA price rally.

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