Asian physical paraxylene, benzene slumps to 11-year low; traded futures volumes soar

Platts physical Asian paraxylene and benzene assessments, both of which are benchmarks used to clear paraxylene and benzene derivatives on the Singapore Exchange, have fallen to an 11-year low this week, on the back of the plunge in crude oil and feedstock naphtha markers.

The CFR Taiwan/China paraxylene marker was assessed at $573.17 on Tuesday, and was last assessed lower at $572.50/mt on November 5, 2008. Prices have breached the $600/mt mark for the third time this month, weighed down by the plunge in oil and steep declines across the aromatics chain. Tuesday's marker is 6.14%, or $37.50/mt, lower than last Friday's assessment.

The FOB Korea benzene benchmark was assessed at $478.33/mt on Tuesday, last assessed lower at $467/mt on March 24, 2009. The marker has dipped 8%, or $41.67/mt, since the week opened.

Amid the volatility across oil and petrochemical products, traders and market participants have turned to paper trading as a way to hedge and manage risk across the petrochemical chain.

Paraxylene derivatives traded on the SGX has increased in volume since the start of the year, with a total 443,400 mt traded in January and 448,500 mt in February, both 35% higher from a year ago.

The SGX also cleared 103,000 mt of benzene derivatives last week, not far from the overall 120,500 mt of trades cleared in February.

The volume of paraxylene and benzene futures trades cleared on SGX is expected to continue rising in the coming weeks, industry sources said, as supply-demand fundamentals and the trickle-down effect from upstream markets are likely to remain uncertain.

Futures trading to manage paraxylene, benzene risk

The over-the-counter market has seen a spike in liquidity for benzene futures, amid a noticeable dip in liquidity for physical cargoes.

One market participant said late Monday that traders outside Asia, including those in Europe and the US, may turn to trading FOB Korea benzene swaps for hedging purposes and risk management given the increase in liquidity in both the physical and derivatives spot market in Asia. East China market participants have also been actively trading the US dollar-denominated FOB Korea benzene paper market, as volatility for Yuan-traded cargoes is just as high.

Last week, activity on the Platts Market on Close assessment process for paraxylene was thin as market participants chose to wait on the sidelines amid heightened volatility in oil markets. However, more than 100,000 mt of paraxylene derivatives were cleared on the SGX last week, bringing the open interest to both a month and year to-date high of 708,000 mt.

Price falls upstream outdo that in aromatics, spreads to naphtha widen

The weakness in both the paraxylene and benzene benchmarks is in part led by the bearish sentiment in upstream markets, with crude oil futures and Mean of Platts Japan naphtha values falling sharply due to the COVID-19 pandemic.

The front-month ICE Brent crude oil futures at the 0830 GMT Asian close on Tuesday stood at a four-year low of $30.68/b, Platts data showed. It was last lower on February 11, 2016 at $30.42/mt.

The Mean of Platts Japan naphtha was assessed at $264.88/mt on Tuesday, Platts data showed, with the assessment last lower on December 5, 2008, at $256/mt.

The spread between paraxylene and feedstock naphtha widened to a six-month high of $308.30/mt on Tuesday, from 302.30/mt last Friday, while the benzene-naphtha spread stood at $213.455/mt.

Despite the increasing price gap to its feedstock, market sources noted that this may not be sustainable as the widening spread has been attributed to the plunge in the upstream oil complex.

It is unclear whether the paraxylene-naphtha as well as the benzene-naphtha spread would remain at prevailing levels going forward given the limited buying appetite from downstream markets in view of the slow down in the wider economy, market sources said.