Thin downstream margins to weigh on Asia PX market in Q2

SINGAPORE (ICIS)–Spot paraxylene (PX) prices in Asia have been rising in tandem with crude values, but thin margins in downstream markets amid continued weakness in the global economy will likely keep the gains in check in the second quarter, industry sources said on Thursday.

Prices have been on an uptrend throughout this week, tracking firmer upstream crude oil and naphtha markets.

On Thursday, PX offers were up $10-15/tonne at $780-785/tonne CFR (cost and freight) China and/or Taiwan levels. Sustained interest for April- and May-shipment cargoes had boosted spot prices to the $758-765/tonne CFR China and/or Taiwan level by end-Wednesday.

But a March Asian Contract Price (ACP) was concluded during the week at $725/tonne CFR Asia, which came as a surprise to market players since the settlement was significantly lower than spot prices.

The major contract settlement in March also defied expectations of a bullish market going into the second quarter, industry sources said.

“Even though spot prices have been on a bullish trend, the ACP negotiators were also considering the thin margins across the entire fibre intermediates chain,” a source close to the negotiations said.

The price spread between PX and downstream purified terepthalic acid (PTA) continues to hover at $65-75/tonne – well below the comfortable level of $90-120/tonne for most PTA producers, market sources said.

One step down the chain, polyester makers are hurting from the continued increase in the prices of feedstocks PTA amid a seasonal pick-up in demand. Prices of another key feedstock monoethylene glycol (MEG), meanwhile, has remained high because of production issues.

PX demand is seasonally strong in the second quarter because of a supply crunch arising from scheduled turnarounds at major facilities in northeast Asia, industry sources said.

In South Korea, a 700,000 tonne/year PX line in Daesan will be shut in March for 45 days of turnaround, while two lines in Yeosu with a combined capacity of 950,000 tonnes/year will be down in April for five weeks.

SK Global Chemical’s (SKGC) 450,000 tonne/year No 2 PX line in Ulsan, meanwhile, is due for turnaround from May to June.

In Japan, JX Nippon Oil & Energy’s 420,000 tonne/year PX line in Oita has a scheduled turnaround from early-May to mid-June, while its 200,000 tonne/year line in Chita is due to shut for a one and a half months from mid-May.

In the key China market, a 660,000 tonne/year PX unit of Zhenhai Petrochemical will be shut from mid-May to end-May, while a 1m tonne/year unit in inner China is scheduled for a longer turnaround from mid-May to end-June.

Meanwhile, a new 1.6m tonne/year PX unit owned by Ningbo Zhongjin in east China is in the process of ramping up operating rates to 70-80%.

The new plant is likely to achieve on-spec production shortly, and possibly help ease the tight supply conditions in China, market sources said.

On the demand side, PX consumption is expected to improve from downstream Chinese polyester producers, as they ramp up production for the peak usage for polyester fibres and polyethylene terephthalate (PET) bottles in the spring season.

In the downstream PTA sector, a number of major plants in China have resumed production, indicating better demand for feedstock PX.

Hengli Petrochemical’s 2.2m tonne/year No 1 PTA line restarted last week after a brief shutdown because of a technical problem.

Yisheng Petrochemical restarted its 650,000 tonne/year No 1 and 2.2 m tonne/year No 4 PTA lines in early February and second-half February, respectively, while BP Zhuhai resumed production at its 1.25m tonne/year No 3 PTA line end-February.

“Given the traditional peak season which is usually seen in spring after the Lunar New Year holidays, it is expected that demand for PTA will continue to increase. With the current operating rates in China, there could be some supply tightness in the near term,” a source in east China said.

China was on holiday from 7-13 February for the Lunar New Year holiday.

Meanwhile, PX prices tend to track the movement of upstream crude prices, which have been under pressure since the second half of 2014 given an oversupply against a backdrop of softening demand amid an overall weakness in the global economy.

Crude prices were largely rangebound on Thursday, with US crude at $34.72/bbl and BRENT crude at $36.88/bbl.

Any wild swings in crude prices on any downbeat economic data would likely drag down PX values, market sources said.

Focus article by Paul Lim