PARAXYLENE (PX (UP STREAM))

The settlement of NA Paraxylene (PX) for February was at 82 cents up 12 cents over January.  Asian increase was at 10.89 cents.  An 82 cents settlement is highest since the price collapse at 79.75 cents/lb set in July 2008.  The question to be asked, right now is, whether this is justifiable?  With outages at Exxon Mobils Beaumont facility and BP’s short Texas city outage, supply has not become unnecessarily tight, even though sentiments of market tightness remain amidst turnarounds expected in the market.  It appears that too much weight is being given to a tight market sentiment when neither PTA production nor PET productions are being curtailed due to a shortage of PX.  Given the current downstream demand an 80% operating rate for polyester converters is not providing the demand pull to create a shortage.  However, sentiments appear to be ruling the market.  The right perspective as one producer said, is that paraxylene is being produced to whatever prices are supporting.  At the same time with Asian PX at $1665-1675 the arbitrage window can open, and some traders are already in the process of booking cargoes to North America.   Further the paraxylene price increase is not supported by a cost push mechanism, as mixed xylene prices have not increased in conjunction with PX increases, and compared to January’s spread of $592, February’s spread has increased to $801. 

European settlement for February was almost at parity with Asia.  There is no real Paraxylene shortage in this region even with Israel’s Gadiv still not operational and PKN Orlen PX plant at Plock Poland having start up issues.  Why because the downstream demand has been curtailed due to PTA outages.  However, another factor contributing to a lower operating rate of paraxylene is low refinery output limiting aromatics availability.  With consumers reverting to substitutes, demand for naptha is being lowered and the spread of PX over naptha has increased to $700/ton.  With such a spread, logically crude oil prices are not directly impacting paraxlyene prices but there is a sentimental drive affecting their prices.  However, in the Eastern economies, specifically China, the high GDP growth rate, and with wages on the increase by 20-30% YOY, there is a continued demand for textiles and polyester expected in the future.  PTA operating rates have been becoming tighter and could go beyond 95% during Q2.  However, as we talk the output to sales ratio is quite low at around 50%, which is in stark contrast to what was happening prior to the lunar year break.  Further refinery operations still remain low.

So what do the market fundamentals indicate?  Currently due to moderate Polyester consumption, the downstream demand pull for Paraxylene is low.  At the same time refinery output reductions are mitigating this effect and keeping PX supply snug, if not tight.  Cost push from oil increase are not the primarily affecting the cost structure as consumers switch to substitutes like LPG.  PTA demand will increase as the year develops.  So Paraxylene should remain steady in the short run.  This should be followed by a steady increase of PX as demand for PTA starts going up.