Asia MX falls below $400/tonne mark on weak China demand; market bearish

Author: Keven Zhang

2020/03/24

SINGAPORE (ICIS)--Asia’s isomer-grade mixed xylene prices have been hovering at their lowest in nearly 17 years, with the market outlook bearish on weak demand from China.

Spot prices of isomer-grade MX on a free-on-board (FOB) Korea basis fell below the $400/mark on 23 March to $388/tonne; while the cost-and-freight (CFR) NE (northeast) Asia price stood at $422/tonne, ICIS data showed.

Spot prices are currently at their lowest since May 2003, according to the data.

CHINA DEMAND IMPROVES BUT STILL WEAK
Import demand from China firmed slightly since early March as the country started lifting coronavirus-related restrictions on economic activities.

In the yuan-denominated market, MX prices have resisted sharp declines in the international markets, widening the gap between the import parity of domestic prices and the FOB Korea price.

The market was aided by the kicking in of a “floor price” in China’s domestic fuel pricing mechanism, in which no adjustment is made if international crude prices are below $40/bbl.

A few deals for MX were made for April to May delivery at prices that fell from the high-$500/tonne levels to $450/tonne CFR east China.

Inventories at Chinese ports continued to hover at high levels due to slow drawdowns by end-users.

“Several buyers have approached me to delay the April delivery cargoes, because they could not find a tank space. I have to focus on such operational matters now,” a trader said.

DOWNSTREAM PX MAKERS MAY CUT OUTPUT
The production margin between downstream paraxylene (PX) and isomer MX has declined to a four-month low, which might lead to cutbacks of PX operating rates in northeast Asia.

On 1-20 March, the spread between PX CFR Taiwan/China and isomer MX CFR northeast Asia stood at an average of $81.20/tonne, lower than the typical breakeven level of $120-140/tonne for end-users using MX as a feedstock.

“We are seriously considering to lower our PX operating rate as the spread [between PX and MX] was below our variable cost,” a northeast Asian PX producer said.

As PX producers usually fix one-year’s supply of MX by contract, the surplus volumes will be sold to the spot market when operation cuts were implemented.

The spread could be further squeezed, as a couple of integrated producers were poised to restart from maintenance, potentially lengthening the supply of PX.

US-TO-NE ASIA ARBITRAGE WINDOW OPENS
Gasoline values in the US plunged as the coronavirus spread in the country became more prominent, with over 43,000 cases of infection, while the US Senate rejected a fiscal stimulus bill on Monday.

US MX prices on 23 March hit a record low of $0.88/gal ($268/tonne) FOB US Gulf. At current prices, FOB Korea prices are higher than US Gulf prices by $120/tonne.

No confirmed arbitrage deal between the US and Asia was spotted so far, but chartering a 25,000-tonne vessel from the US Gulf to northeast Asia would only cost an estimated $60/tonne.

Between end-February and early March, a massive 30,000-35,000 tonnes of MX were moved to the US from northeast Asia amid an open arbitrage window.

Focus article by Keven Zhang

Photo: Cars drive in a traffic jam on a road in Beijing, China on 17 March 2020. (Photo by ROMAN PILIPEY/EPA-EFE/Shutterstock)

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