PARAXYLENE (PX (UP STREAM))

PX (UP STREAM)

The price of NA PX is artificially high as there is low demand for its precursor, mixed xylene, in the US market.  Lack of demand has a deflating impact on PX; however, trying to set parity with 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 lunar year approaches. 

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.  

STRUCTURE OF LEARNING

The blog is structured in a way so that it can take aboard, new comers as well as  informed audience, and apprise them with current market situation.  To cater for both classes, we initially jump right into business discussion as it relates to the market, while always keeping in mind the main objective of this blog; ascertaining short term and long term demand and pricing trends.  However, during the course of our discussions, we may delineate a course outline as well.  This will serve the professional, in better analyzing the structure of the value chain, and also defined metric for basing pricing decisions.  We will incorporate this outline during the course of our discussions. 

Acronyms are used often in the business discussion, therefore, some to be kept in mind for better comprehension of the value chain are as follows:

ACP                Asian Contract Price

NAC                North American Contract Price

EUC                European Contract Price

NA                  North America

EU                   Europe

MEG                Mono Ethylene Glycol

MX                  Mixed Xylenene

PX                   Paraxylene

PTA                 Purified Terepthalic acid

PET                 Polyethyleneterepthalate

OR                   Operating Rates

FC                   Fixed Cost

VC                   Variable Cost

POY                Partially oriented yarn

FDY                Fully Drawn Yarn

DTY                Drawn Texturized yarn

PSF                 Polyester Staple Fiber

Ktpa                Kilo Tons Per annum

DEN                Denier

dTEX               decitex

BCF                 Bulk Continuous Filament

PC                   Polyester Cotton

CT                   Cotton

VALUE CHAIN

In the simplest of terms, it would be good to make note of the fact, that plastics i.e., PET, PVC, PP etc have an origin from crude oil.  On one side of the refinery operations Napthalene is produced via hydrocracking from a wide range of refinery feedstocks.  Next a BTX (Benzene, Toulene, Xylene) extractor, which is also an aromatic complex, convert naphtha, from a variety of sources, and pyrolysis gasoline into the basic petrochemical intermediates: benzene, toluene, and xylenes. Conventional PX technology is based on the isomerisation of mixed xylenes. High purity product can be obtained using crystallisation or selective adsorptive separation.  Next PTA is produced by the catalytic liquid phase oxidation of paraxylene in acetic acid, in the presence of air.  On the other side of the refinery operations most ethylene used for petrochemical applications is produced by steam cracking of naphtha or natural gas liquids. 

From the above stated information, technical jargon as it may appear to many readers, what needs to be understood from a commercial standpoint is which operations are predecessor to whom.  It is this value chain, which defines the supply slackness and tightness at any given point in time, which again impacts two variables; supply/demand, and pricing orientation. 

OUTCOMES

So two learning’s that I would want the readers to take away from this discussion are

1. Understanding the acronyms
2. A reasonable understanding of the manufacturing value chain to better understand the supply chain.

FOREWORD

A couple of professional reasons have prompted me to start this blog.  Ever since I stepped into the PET (Polyethylene terephthalate) market, one of the most relevant point of discussion for all professionals that I come in contact with is understanding the correct behavior of the market, and specifically how that relates to future pricing trends.  What I have seen is a lack of convergence of point of views when a price of a contract has to be figured out.  With its origin from the crude oil, it would not be wrong to say that this sector has its fair share of complexities, even though the delivered product may just be a polyester fiber or a chip.  Further the application of this product in the textile sector, food and packaging industry are enormous.  The common eye may overlook its importance, but professionals of this sector truly understand its pervasive scope as a globally traded commodity. 

So if I were to sum it up, some of the factors that have motivated me to start this blog are as follows:

1. A firm understanding of the polyester market fundamentals
2. What factors to be considered while predicting the future market  pricing trend and assessing demand?
3. To educate audience on how the whole sector is structured
4. To understand better the dynamics of the supply chain i.e. from crude oil to the production of polyester
5. To deliver market updates related to acquisitions, plant expansions, technological advancements and market developments. 

My approach of building up this knowledge base for the viewers is first providing an over view of the value chain, without delving into the technical complexities.  Also I would like to state the acronyms that are commonly used, so that the audience remains aware when they are applied.  So after having given the basic over view, I would start talking of the fundamental components that affect the downstream polyester sector.  The paradigm over which this blog is being synthesized, is that all readers, novice or advanced should be able to attain knowledge from these articles, that would help in knowledge propagation.   

In short, specifically we would be regularly analyzing the prevalent market scenario of this sector.  Broadly we would be touching upon factors related to global economy, international fiancé, international trade & marketing and their implication on this sector. 

A CHANGING MOMENT

Dear Readers,

For me, this day January 1st, 2011, may be considered a vital and one of great significance.  Why the over dramatics, not because today I’m setting the corner stones of starting my first blog, but most importantly, I'm taking a step whereby I will open to the world a channel of communication and a knowledge base.  Blogging will be a medium that will allow me to interact and develop a road map for an intellectual journey. 

The reason for taking “The Polyester Value Chain” as my starting blog is simple:  it is most relevant to my current field of profession.  Further this sector in its totality influences, our every day life, in ways in which consumers perceive not.  In fact the average consumer is regularly making decisions to purchase products containing polyester.  The reason for subscribing to this topic is its relevance in our every day lifestyle, and to open to readers the Global macroeconomic fundamentals governing the dynamics of this sector.  It’s about creating the connection between market indicators and chain operations to the perceptions of the common man and thus his purchasing decision.  This blog will also lend support for all professionals working in the polyester sector who are regularly making purchase and sales decisions as part of their job function. 

I draw the attention of an audience, which wants to see global economics, international finance, cost economies, their interplay and practical application in the sector of the “The Polyester Value Chain.”

So readers are we ready to start this journey?!!!!

Regards,

Polyester Guru