Focus article by Hazel Kumari
SINGAPORE (ICIS)--Northeast Asia orthoxylene (OX) spot prices regained some ground last week ending a consecutive two-month drop, but market outlook remains uncertain unless some shift in demand supply pattern takes place.
Most players were unwilling to take a buy-sell stance as they were waiting for supply and demand fundamentals to balance once OX producers’ start turnarounds.
Others expect the current weakness to persist until mid-May as end-users had covered their requirements with previously purchased cargoes and were not actively seeking more material.
On 14 April, CFR (cost & freight) NE (northeast) Asia prices had entered its second-month of a straight loss, its worst losing streak seen since 2015.
The persistent pullback in prices was attributed to the emergence of lower offers, softening discussions in the downstream phthalic anhydride (PA) market and ample OX supply.
“In China, OX prices have been dropping upon the completion of post-Lunar New Year holiday purchases and we are just waiting for prices to touch bottom,” said a northeast Asian trader.
During the week ended 21 April, spot prices were at $700-720/tonne CFR NE Asia, $10/tonne higher at the high end.
Traders said the slight gains came amid a reduction in operating rates and turnaround at some OX plants based in South Korea, Japan, China and Thailand.
Supply to northeast Asia has seen a reduction in April as South Korea’s Lotte Chemical had limited spot availability following a reduction in OX output.
China’s Sinopec Yangzi Petrochemical will be shutting its 260,000 tonnes/year OX unit at Nanjing in Jiangsu province in May for maintenances. The company is likely to restart the plant by the end of June.
The shutdown will result in a loss of about 20,000 tonnes of OX, but this will have little impact on the spot market, according to market sources.
Thailand’s PTT Global Chemical (PTTGC) will be conducting maintenances at its 86,000 tonne/year OX unit in Map Ta Phut beginning mid-June.
The company has already provided notification to their term buyers that they will be lowering contractual obligations during the shutdown, according to an end-user.
In recent weeks, feedstock isomer-grade xylene prices were stable-to-firm amid plunging OX values.
As such, the OX/isomer-grade xylene spread had continued narrowing to $22/tonne, below breakeven levels of $80/tonne for regional OX makers.
“With every tonne of OX produced, we are facing a loss of about $50-60. Demand from China and South Korea is also very poor as a lot of PA plants are undergoing maintenances. We have decided to only produce enough OX for contractual [obligations],” said a northeast Asian OX producer.
Market conditions in the overall plasticizer chain were deemed weak, hampering buying interest in the key China region.
On that basis, discussions in the local market for downstream PA material continued easing, encouraging end-users to keep their feedstock inventories lean.
Maintenances at some PA plants in South Korea and cutbacks in operating rates at Chinese plants had lowered consumption of OX.
PA makers polled had no immediate plans to raise output as demand from derivative buyers remained sluggish.
“We are struggling with the rising PA stockpile. Buyers have no interest in booking any cargoes and together with high OX costs, we have shut one out of three [PA] lines,” said a China-based PA maker.
In addition, buyers were unwilling to start negotiations as inventories at shore tanks along eastern China had continued rising due to a decline in consumption.
Stock piles rose by about 2,000 tonnes week on week to 57,000 tonnes, which could cover domestic demand for approximately two months.
According to some sources, several PA plants in eastern China were issued a notice to halt operations for environmental protection purposes, which would exert downwards pressure on OX demand and prices.
“Naphthalene-based PA and OX-based PA plants were ordered to stop production due to environmental issues. The plants might not be able to restart for another two or three weeks which means OX demand is going to remain weak,” said a China-based trader.
On the other hand, others expect downstream conditions to improve because of the tighter PA supply.
“The market might finally balance itself as these plants will not be able to flood the market with more PA cargoes which could provide a platform for prices,” according to a second China-based trader.