Asia isomer-grade xylene flows to US amid open arbitrage window

01 September 2016 07:03 Source:ICIS News

Busan port, South Korea

SINGAPORE (ICIS)--Concerns of a lengthening spot Asian isomer-grade supply in October have encouraged traders to look at diverting material to the US market, where prices are firmer, industry sources on Thursday.

The Asia-US isomer-grade xylenes has opened on paper, following stronger prices in the US Gulf Coast.

On 26 August, the spread between isomer-grade xylene CFR (cost and freight) NE (northeast) Asia and FOB (free on board) US Gulf prices was assessed at $17.50/tonne.

US prices increased to $2.05-2.25/gal FOB US Barges, which is equivalent to $624-684/tonne FOB US Barges, while Asian prices were assessed at $670-673/tonne CFR NE Asia, according to ICIS data.

Some traders have sold their September-loading cargoes to buyers in the US, taking advantage of the current low freight rates between South Korea and the US.

On 29 August, trading firm Mitsubishi was seeking a vessel to transport isomer-grade xylene from Ulsan to Houston. It subsequently chartered Maritime Meridian to load 15,000 tonnes of the material with laycan of 20-30 September at low-$30/tonne levels, according to shipping sources.

US supply is tight amid a force majeure declared by a major producer, while demand is strong from gasoline blenders and downstream paraxylene (PX) makers, market sources said.

“[The] opening [of the] Asia-US isomer-grade xylene arbitrage has helped several traders find an outlet for their September cargoes before supply lengthens in October,” a northeast Asian-based producer said.

So far, the Asian market is balanced. Some market players with surplus August isomer-grade xylene cargoes had rolled them to September, which had helped offset production losses stemming from maintenances at various isomer-grade xylene plants scheduled for September.

However, as traders expect supply for October to lengthen considerably, they were looking to sell their end-September cargoes ahead of further price declines in northeast Asia.

“Some [players] are looking to sell their end-September cargoes now as they have no confidence in the outlook, especially once Hyundai Chemical starts producing on-spec cargoes,” a northeast Asian trader said.

“So now, they want to sell as much as possible before buyers move onto October discussions because that would affect spot prices for September,” the trader said.

In October, South Korea’s Hyundai Chemical will start commercial production at its new 1m tonne/year isomer-grade xylene plant in Daesan. The new facility is a joint-venture between Lotte Chemical Corp and Hyundai Oilbank.

All isomer-grade xylene production from the plant would be split equally between Lotte Chemical and Hyundai Cosmo Petrochemical (HCP) to be used as feedstock for their respectively paraxylene (PX) units, according to a source with knowledge of the matter.

“There are no changes to our initial [plan] to raise operating rates upon receipt of our feedstock cargo and we will be selling the surplus in the spot market,” a source from HCP said.

Downstream PX demand in Asia for September is expected to be limited by scheduled shutdowns/production cuts at several plants in eastern China ahead of the G20 summit.

The production curbs that started in late August are part of initiatives to improve air quality for the duration of the summit in Hangzhou City on 4-5 September.

“Chinese end-users are not buying spot [cargoes] as they are well-covered by contractual volumes. Since they would have to lower [operating rates] or shut their plants because of the summit, all the more they don’t want to build [feedstock] inventories,” the northeast Asian producer said.

Chinese demand for isomer-grade xylene has slumped since June upon the start-up of two new domestic plants, namely Ningbo Daxie Petrochemical’s 340,000 tonne/year unit in Zhejiang and Zhuhai Changlian’s 300,000 tonne/year unit in Guangzhou.

Buyers in the domestic eastern and southern China regions were procuring cargoes from Ningbo Daxie Petrochemical and Zhuhai Changlian at competitive prices, market sources said.

Focus article by Hazel Kumari

Xylene FOB US Gulf 1 September 2016

Isomer-grade xylene CFR NE Asia 1 September 2016

Picture: Busan container port in South Korea (Source: Eye Ubiquitous/REX/Shutterstock)

By Hazel Kumari