Europe OX falls amid insecure supply, PX affected by weak demand, supply growth

Author: Nick Cleeve

2019/06/20

LONDON (ICIS)--The European contract reference price for orthoxylene (OX) has settled at a decrease for June amid balanced supply and supported by import material; negotiations for paraxylene (PX) are ongoing.

- Europe PX June contract price yet to be settled

- Downstream demand, Asia dynamics key to PX pricing

- OX supply balanced, but insecure

Talks for PX are likely to be driven by good availability of material, continued weak demand for derivative polyethylene terephthalate (PET) and recent movements in the crude oil and Asian PX markets.

PX ASIA UNCERTAINTY, WEAK PET DEMAND
European PX is influenced by pricing in the more liquid Asian market, and monthly talks for the Asian contact price (ACP) are a useful indicator of market conditions and sentiment in the region.

Though no major settlement of the ACP has been reached since March, negotiations have been at lower levels during the second quarter in anticipation of longer supply conditions.

However, a combination of planned and unplanned outages in Asia and the Middle East, including unstable operations at Hengli’s recently started 4.5m tonne/year plant, have resulted in low inventories and limited prompt supply.

Downstream demand for PET has been impacted by high inventories and weak seasonal consumption, despite June typically being part of the peak bottling season.

OX SUPPLY INSECURITY
Supply of OX is precariously balanced, despite BP's ongoing force majeure at Gelsenkirchen in Germany, due to imports from the US and Asia, attracted by rising spot prices following BP’s declaration in late January.

This has left the European OX market dependent on the duration of this outage and any change in trade flows.

European supply could tighten if these export volumes decrease before BP’s production returns to normal rates, with a trader saying that it is unusual for significant volumes to be imported from the US or South Korea due to expensive freight costs.

Equally, supply could lengthen if these additional volumes continue to reach Europe after BP’s restart, particularly as the six-to-eight weeks lead time required for deep sea exports will limit importers’ ability to change volumes if Gelsenkirchen restarts unexpectedly.


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UPSTREAM
Europe’s feedstock mixed xylenes (MX) prices were driven ever higher by rising gasoline prices for the first five months of 2019, but Brent crude’s flatlining trend in May and flop in June took the wind out of the sails of this climb.

Plunging premiums over Eurobob gasoline exacerbated this trend, falling from mid $100s/tonne to as low as $75/tonne in late May.

Weak PX demand is partly blamed for this premium fall.

In late May, even with plateauing spot prices on the bulk market, a trader remarked: “There's no margin to make PX from MX at the moment.”

The trader added it did not expect MX premiums to change, “not until PX picks up. PX has been really bearish.”

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PX is predominantly used as a feedstock to produce purified terephthalic acid (PTA). Other outlets include dimethyl terephthalate (DMT), di-paraxylene, herbicides and solvents.

Both PTA and DMT are used to make PET. Around 98% of PX is used to produce polyester via PTA or DMT. DMT is also used to manufacture polybutylene terephthalate (PBT) resin.

OX is the second largest of the three commercial isomers of xylene and it is used almost entirely in the manufacturing of phthalic anhydride (PA), which is converted to plasticizers, alkyd and polyester resins.

Pictured: BP's Gelsenkirchen facilities in Germany
Source: BP

Focus article by Nick Cleeve

Additional reporting by Caroline Murray and Vicky Ellis