OUTLOOK ’18: Europe PX, OX derivative markets keen for prompt, definitive contract settlements

05 January 2018 13:00 Source:ICIS News

handshakeLONDON (ICIS)--European paraxylene (PX) and orthoxylene (OX) derivative markets are hoping that 2018 will see the return of more prompt and definitive contract settlements in the feedstock markets.

Derivative producers are keen to see swifter settlements for OX in 2018 as there were a few months at the end of 2017 when settlements had stretched well into the month and in the worst case were not agreed until the end of the third week of the month.

“These talks need to be quicker,” one source from the downstream phthalic anhydride (PA) sector said and added that “lots of other feedstock markets settle promptly, so why not OX?”

Traditionally, PX and OX contract prices are agreed at the beginning of the month, with a single price agreed by key negotiating parties.

European PX contract price negotiations have also become more difficult over the past few years, with many split settlements taking place.

Many players are keen to avoid a continuation of the split settlements seen a number of times in Europe in the past couple of years, stating that it creates confusion and lengthens the negotiation process downstream.

However, European PX contract negotiations are likely to remain difficult as there are few parties involved, the link to Asia is not always evident, and not all players have the same rationale.

PX is the largest commercial volume isomer of the mixed xylenes. Around 98% of PX demand comes from the polyester chain via one of its intermediates purified terephthalic acid (PTA) or dimethyl terephthalate (DMT).

Some attribution of the difficult talks for the PX price is placed on the disappearance of some players from the market because of consolidation of the downstream industry.

In the spot markets, PX and OX are likely to carry on generally following the trend of the more active Asian markets, upstream crude oil movements, and reacting to the USD/EUR exchange rate fluctuations.

However, European output largely runs according to contract demand, and as such spot transactions are limited.

If we look at mixed xylenes (MX) and aromatics as a whole, overall demand is expected to remain quite stable in 2018. However, the direction of energy prices is unclear, with geopolitical tensions in the Middle East, Venezuela and North Korea remaining key drivers of crude oil pricing.

Some players across the supply chain are facing higher freight rates due to the structural shortage of truck drivers that had caused significant transport disruption in 2017.

One of the key discussion points at the end of 2017 was the surcharges being proposed to PA on top of the full pass through cost of feedstock OX, because of higher transport and energy costs.

Increased global PX supply is expected for the next few years.

Ningxia Baota Petrochemical in China announced a new integrated aromatics unit, which was expected onstream in 2018, and additional benzene capacity is expected at the Sinochem Quanzhou site, alongside additional PX.

A number of the planned integrated PX units are expected to be set up to maximise PX output.

The planned capacities could mean an additional 16m tonnes of PX, and they could go a long way to making China self-sufficient in the material. The obvious effect would be on exporters to China as imports are pushed out, with only low-cost producers likely to be able to compete directly.

Almost all OX output is consumed in the manufacture of phthalic anhydride (PA) so it is key to also look at PA expectations for 2018.

The European PA market anticipates good growth and demand in 2018, with demand into the polyester polyol market estimated by some to grow by around 10%. Plasticizers is expected to have low single-digit growth.

However, that growth is not expected to be fully felt by some until the end of Q1 when European demand is traditionally reaching its healthiest period into Q2.

Additional reporting by Jane Massingham, Vasiliki Parapouli and Rob Peacock 

By Helena Strathearn