OUTLOOK ’14: Additional Asian PX supply to weigh on spot prices

By Samuel Wong

SINGAPORE (ICIS)–Asian paraxylene (PX) market is expected to turn slightly long in 2014 on the back of new capacities that are expected to come on stream in the year, industry sources said.

Asia’s PX capacity expansion is expected to reach 39.57m tonne/year in 2014, which is likely to outstrip actual demand, the sources said.

Asia has added a total capacity of 3.55m tonnes/year of PX in last year, bringing the total PX capacity in Asia to 31.7m tonne/year by end-2013, according to ICIS.

Comparing the nameplate capacities of PX against downstream purified terephthalic acid (PTA) nameplate capacities, there will still be a shortage of PX supply, the sources added.

“However, whether the market will be long or short is highly dependent on the actual demand of PTA in 2014, and the downstream outlook currently looks bleak,” a northeast Asia-based trader said.

The supply growth rate of PX from 2013-2015 is estimated at 14-17% annually, compared to the growth rate of demand, which is likely to remain relatively stable at 5-6% on unfavourable macroeconomic conditions.

PTA is a major application of PX, with China being the key market for Asia, as the majority of PTA facilities are located in the country.

According to several market participants, the export of PX cargoes into China in 2014 is expected to increase to 800,000-850,000 tonnes/month, compared to 700,000-750,000 tonnes/month in 2013, following PTA expansions continuing into the year.

Several industry sources expect the additional PX capacities to add downward pressure on PX prices as supply will likely be ample in 2014.

In China, PetroChina’s new 650,000 tonne/year PX unit is expected to start up in January-February 2014.

In South Korea, SK Global Chemical’s (SKGC) 1.3m tonne/year PX Incheon unit is scheduled to start up in July 2014, while its joint venture with JX Nippon Oil & Energy – the 1m tonne/year PX unit in Ulsan – is scheduled for start up in June.

In addition, Samsung Total’s 1m tonne/year PX unit is scheduled for start up in the third quarter.

Jurong Aromatics’ new 800,000 tonne/year PX unit located in Singapore is expected to come online in June 2014.

Saudi Aramco Total Refining and Petrochemical (SATORP), a joint venture between Saudi Aramco and Total, is scheduled to start up its 800,000 tonne/year PX unit in mid-to-end January, while ONGC Mangalore Petrochemicals is expected to bring on stream its new 920,000 tonne/year PX unit in the first quarter of 2014. 

The overall operating rate of Asia’s PX plants is likely to fall to 80-85% capacity in 2014, largely attributed to the expected prevailing weak downstream demand, and the weak PX margin spread against its feedstock prices, according to ICIS.

Run rates at PX facilities have been at high levels in the past two years and were estimated at around 90% in end-2013, because of the fundamentally short market previously, according to ICIS.

However, as demand in the downstream sector remains lacklustre, margins faced by end-users have been squeezed as seen significantly in the second-half of 2013, leading to smaller profit margins for PX markets, market sources said.

The market dynamics started to change towards the end of the year 2013, especially following the start up of China’s Dragon Aromatics’ 1.6m tonne/year PX unit and the restart of Indonesia’s Trans Pacific Petrochemical Indotama (TPPI) 550,000 tonne/year PX unit in the third quarter.

“Despite several unplanned shutdowns at PX facilities in 2013, we did not see a spike in PX spot prices because end-users were unable to pass down additional cost to their customers, and availability of PX cargoes were still there,” a northeast Asia-based PX producer said.

In 2013, the spread between feedstock paraxylene (PX) and PTA ranged from as low as $63-64/tonne (€46-47/tonne) in October and November to a year-high of $119-121/tonne in July and August, with an average spread of $92/tonne as of November in 2013, according to ICIS.

A minimum spread of $110-130/tonne between PX and PTA prices was deemed necessary for most Asian PTA producers in order to break even.

As a result, the spread between feedstock naphtha and PX has also narrowed to around $450/tonne, compared to previous spreads at above $500/tonne, according to ICIS.

Towards the end of 2013, the operating rates at several mixed xylenes (MX)-based PX facilities were reduced because of weak economics and poor margin spreads.

“We are quite pessimistic,” said a South Korean PX producer, who held that the weak spread between feedstock MX and PX prices is likely to continue into 2014.

Moreover, deep-sea PX cargoes coming from Europe and the US into Asia are expected to fall to around 700,000 tonnes/year in 2014 compared to an estimate of 1.1m tonnes/year in 2013, industry sources noted.

“Despite supply looking ample in Asia, whether how much cargoes enter Asia will also depend on the arbitrage window, nothing is for certain now,” a European trader said.

On the other hand, majority of market participants were in agreement that supply and demand conditions are likely to remain unchanged from the end of 2013 going into the first quarter, as the new effective PX supply is only likely to begin from the second-half of 2014.

At present, the 2014 PX contracts remains largely “unsettled” despite the arrival of the new year, PX producers and end-users said.

“Contrasting views on the market outlook and the extent of the market balance has resulted in very tough negotiation for 2014 term,” a northeast Asia-based end-user said.

So far, only two buyers were heard to have concluded a certain portion of their volumes for the 2014 term contract based on a weightage of 60% Asian Contract Price (ACP) and 40% spot CFR (cost & freight) quotes at parity.

Majority of the offers by regional PX suppliers were kept firm at flat to a premium of $5/tonne to the 50% ACP and 50% spot CFR quotes formula, compared to premiums of around $7-11/tonne in 2013.

“Just by looking at the drop in premium by suppliers, we can see that PX spot prices are likely to come under pressure 2014 because of additional supply and expected weak demand,” a major trader said.

($1 = €0.73)