Asia isomer-grade xylene under downward pressure amid long supply

Source: ICIS News

2019/03/12

SINGAPORE (ICIS)--Asia’s isomer-grade mixed xylene (IX) prices have declined for four consecutive sessions amid ample supply and weak downstream market, with the supply surplus situation expected to continue for months.

Container port in Qingdao, Shandong, China (Photo by Yu Fangping/Pacific Press Via Zuma Wire/REX/Shutterstock)

Prices of IX were assessed on 11 March at a five-week low of $649/tonne FOB (free on board) Korea, down by about 4% from the close on 5 March, ICIS data showed.

The strong presence of sellers in the market was leading to progressively lower offers, without a single buyer.

“The reason is simple, IX supply is too long in the market,” a trader said, explaining IX’s weakness in recent days.

IX inventories in east China on 28 February climbed to a historical high of 115,700 tonnes, near three times the average inventory of 42,500 tonnes between 2016-2018, according to ICIS data.

For April, the market outlook is also bearish as a major Taiwanese downstream end-user will start a planned turnaround at its No 1 Aromatics complex. The company is a key buyer in Taiwan purchasing two to three 5,000-tonne cargoes on a monthly basis from the spot market.

Buying inquiry has been strong in the key China market since late February on bullish sentiment following announcement of a cut in value-added tax (VAT) for the manufacturing sector to 13% from 16%.

A major petrochemical complex in north China bought IX for March delivery for the test-run of its paraxylene (PX) plant, which is poised to begin production either late this month or April, according to market sources.

As a result, IX prices in the CFR China market increased.

As a number of transactions were made for delivery to China, the uptrend of ex-tank prices in China, denominated in yuan (CNY), soon came to halt.

“I did not buy as I feel it [domestic price] could fall any time, just like the FOB [Korea] market,” an importer said.

But the IX market may be supported as producers were facing increasing cost pressures as the spread between IX and its feedstock drastically narrowed.

During the week ended 8 March, the IX/naphtha spread was at $115-139.25/tonne, lower than the breakeven spread of $160-180/tonne for producers.

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IX can be produced from naphtha via pygas or reformate, or it can also be produced from toluene via TDP (toluene disproportionation).

On 11 March, toluene prices were at $647.5/tonne FOB Korea, with a negligible $2.5/tonne theoretical production margin for TDP operation.

Meanwhile, toluene can be used as an alternative to IX in gasoline blending.

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Arbitrage opportunity to ship northeast Asian cargoes to the US is currently wide open on paper, subject to spot vessel availability in April, following the strengthening of US IX prices.

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US spot mixed xylenes (MX) increased to $2.665/gal (equivalent to $813/tonne) FOB on 11 March from $2.640/gal FOB on 8 March amid increasing demand.

The estimated freight from Asia to the US is estimated between $80-120/tonne, with voyage time of around 27 days.

Focus article by Keven Zhang