OUTLOOK ’18: China domestic MX to face oversupply, soft demand

SINGAPORE (ICIS)–China’s domestic mixed xylene (MX) prices are expected to be weighed by the slew of new units coming on line amid weakening demand in the new year.

Chinese MX spot prices slipped on the back of environmental protection issues earlier this year before bouncing back on the back of higher crude oil prices (please see chart below).

Four MX plants are expected to start up during the second half of 2017 and the first half of next year. This will increase domestic supply by 1.25-1.5m tonnes per year. Most of new supply will go into the south China market.

China’s new MX capacities (H2 2017-H1 2018)
Location	Producer	Start-up schedule	Capacity (‘000 tonnes/year)
South China	PetroChina Yunnan Petrochemical	August 2017	530
South China	Phase II CNOOC Huizhou	October 2017	460
East China	Sinopec Jinling Petrochemical	November 2017	410
South China	Sinopec Maoming Petrochemical	March 2018	400
Source: ICIS

PetroChina Yunnan Petrochemical has begun commercial sales since September and has supplied around 5,000 tonnes of MX each month to south China.

China National Offshore Oil Corporation (CNOOC) Huizhou refinery’s phase II aromatics facility is running at around 70% capacity during its commissioning phase, with few volumes for spot sales.

The refiner is scheduled to ramp up to full production by March 2018, delivering around 38,000 tonnes of MX each month. mainly to south China.

Sinopec Jinling Petrochemical plans to reserve most MX output for its own paraxylene (PX) production, with a few for spot sales. Its new unit will be undergoing trial runs until the end of 2017.

Before the start-up, Jinling Petrochemical has to purchase MX from the east China market to feed its PX plant. There will be more MX sold in east market after the start-up.

Sinopec Maoming Petrochemical, meanwhile, will be supplying 33,000 tonnes of MX each month to south China after its new aromatics unit achieves on-spec output.

On the demand side, MX consumption by PX producers is likely to remain largely stable next year with no new PX units heard to come on line in China next year.

MX can be used as a gasoline component in fuels to boost octane, or as a chemical feedstock for PX production or as a solvent.

Its use as a solvent may gradually decline in response to the Chinese government’s continued efforts in addressing environmental issues including its control of volatile organic compounds (VOC) emissions.

VOCs are found in a wide variety of products such as solvent-based paints, printing inks, many consumer products, organic solvents and petroleum products.

Industry participants expected the use of MX as an octane component in fuels to shrink in 2018 as the country calls for nationwide use of GB (national standard)-VI gasoline.

Aromatics contained in gasoline should be reduced from 40% in GB-V specifications to 35% in GB-VI standards, while benzene content will be cut from 1% to 0.8% upon the fuel quality upgrade.

As an octane booster in gasoline, MX has obtained no cost advantages over its alternatives – mixed aromatics and methyl tertiary butyl ether (MTBE) throughout 2017 (please see chart below).

Despite supply-side pressures and expected tepid demand, market players are unlikely to seek overseas outlets citing high export tariffs and poor margins.

With additional supply meeting softer-to-stable demands, Chinese MX market may face an oversupply of the material and prices may fall, especially in the south China market.