PX (UP STREAM)
The price of NA PX is artificially high as there is low demand for its precursor, mixed xylene, in the US Asia , where PX prices have assumed an upward trend, December contract nominations for NA PX have been higher than November. Therefore, the price gap between NA PX and NA MX has opened up, and had it not been a steady demand for downstream sector, PX price may have collapsed as such a gap is not sustainable. What appears now is that an arbitrage window will open up for the NA MX market as cargoes start moving towards Asia, where prices have been maintained at $1030-$1040 as compared to $945. As of now some cargo is already booked for Asia and further negotiations underway. What this means is that a downward cost pressure for NA PX is in the works, and with price being artificially maintained, a closure of the arbitrage window should bring stability.
This is an apparent oddity, with intermediate demand for aromatics low, thus easing as cost push, but with NA PX going towards a high settlement. Gross margin is expected to be ~ >$370-$400 much higher than the past average of ~$250 as PX producers, with little justification, look to settle upwards. This upward cycle should start reversing as China
Europe PX settlement, amidst, stable downstream demand, settled Euro 102/ton higher at Euro 1030 in December. Comparing to an increase of $55 of Asian raws over November, however a weak Euro: Dollar parity, down from 1.41 to 1.30, such an increase is really “unexplainable”. However, it is being indicated that downstream demand for PET remains very healthy and with low PET stocks in the value chain, a need to purchase will induce PTA and thus PX demand going into 2011.
In the Asian market, the situation is different. There is no slackness in the entire value chain and the increase in feedstock prices are finally factoring into PX spot prices. With a bullish sentiment PX price has sporadically jumped to $1350/ton fob during December. Temporary factors of outages, amidst this buoyant polyester market, are making supply tight. Kuwait Aromatics has announced a force majeure for PX in January. Sinopec Yangzi is to shut its two 800ktpa PX plants for two weeks in second half of December. Petrochina Urumuqi has shut down its 1000 ktpa PX plant which is expected to start in spring. However, with the availability of Iranian material expected during Q1 of 2011, and then the start up of S-Oil in Korea of 900 ktpa which will be followed by Urumuchi in China in Q2, would increase the supply of PX, however, this should match the expected 6-7% growth of the polyester sector. So by all means an oversupply in not expected. In the short run, with the coming of the Lunar New Year Holidays, some stock building should be a precursor, to the sluggish start expected afterwards.
CONCLUSION: If global cost dynamics are to be settled keeping far eastern raw materials in perspective then our cost of paraxylene and consequently PTA (purified terepthalic acid) will ride up.
