H2 2021 PETROCHEMICALS: Increasing PX capacity a key factor for global MX

One of the key factors determining how mixed xylenes will fare globally in the second half of 2021 is the ongoing increase in downstream paraxylene capacity, mainly in Asia.

As Asia's isomer-grade mixed xylene market moves into the second half of the year, the short supply in the second quarter may ease as MX units in Japan return to production after maintenance, market participants said this month.

However, key end-users such as Taiwan's Formosa Chemicals & Fiber Corp., or FCFC, as well South Korea's Lotte Chemical, are scheduled to shut their aromatic plants -- capable of producing PX, benzene and orthoxylene -- for maintenance, thus shrinking demand for isomer-MX as both companies are large end-users of the feedstock.

FCFC plans to shut its No. 2 aromatics complex at Mailiao in July for about 45 days of maintenance, while its largest No. 3 aromatics plant will shut for 20-30 days in October, S&P Global Platts reported. Lotte plans to shut both its aromatics plants in Ulsan for about 35 days of maintenance over October-November.

Meanwhile, downstream paraxylene will be impacted by the phase two start up of China's Zhejiang Petrochemical, which will add about 2.5 million mt/year of PX from June onwards, followed by another 2.5 million mt/year in Q3.

The addition of such a substantial capacity is likely to weigh on PX, and affect isomer-MX prices and margins, market sources said in May.

A Northeast Asian PX producer was concerned about the increasing PX supply, adding that it might result in lower runs for his PX plant, and by extension lower MX demand.

"But new purified terephthalic acid capacity is huge as well. And if global demand gets better in the second half of the year, then maybe [the supply increase is] not a big issue," a source with a Chinese PX producer said.

Meanwhile, Indian demand, which favors solvent-MX over isomer-MX, is highly uncertain through the second-half, as the country continues to battle a severe wave of the coronavirus.

Europe's MX length to subside amid PX ramp up

Europe's MX markets have their eyes focused on PX for the second half of the year on hopes of fresh demand following the restart of downstream PTA units from maintenance.

Any increase in the continent's MX demand in the second half will hinge on higher PX production rates and a ramp up in driving activity, which may pull MX into the gasoline blend pool. This year, chemical demand has been subdued, due to PX plant outages, while MX blend values were far less competitive than components such as reformate or MTBE.

As a result, spot market activity has been muted, with producers also limiting supply.

"There were too many PTA turnarounds that are expected to end soon. If PTA is back, the xylenes length will disappear," a seller said.

Peak PTA demand is expected from July to September, when polyethylene terephthalate, or PET, production should ramp up, a trader added.

The European MX market was also expected to see an increase in demand from the gasoline blend pool in H2, especially during the summer driving season as vaccination programs in Europe continue.

Demand for MX in gasoline blending may also increase due to shipments to the US, where demand is expected to rise given new regulations around greater volume of aromatics in gasoline blends.

US' MX well-supplied in H2

In the second half, MX will be well-supplied in the US Gulf Coast, despite planned turnaround and reformer shutdowns tied to the mid-February Texas freeze and subsequent power outages that limited producers' output.

Net refinery utilization in the US dipped during the winter storm, but rebounded to 86.5% of US capacity in May, just under pre-pandemic levels. Run rates could reach near 95% by mid-summer, according to S&P Global Platts Analytics' forecast.

In addition, sharp increases in spot benzene prices greatly improved the economics of toluene disproportionation, introducing more MX as by-product into the US supply. Widespread downstream demand and supply squeezes have led to a bullish outlook for US benzene through 2021.

Meanwhile, demand from downstream PX producers will depend in part on the supply recovery of US acetic acid, which had earlier been curtailed by the Texas freeze.

"The PET/PTA supply chain is having trouble securing acetic acid, which is affecting PX demand and operating rates, and therefore demand for MX," one market participant said.

Increasing global PX capacity that has weighed on prices and margins will continue to limit demand for feedstock MX, so long as it remains cheaper to import PX into the US Atlantic Coast than to purchase, ship and process USGC MX. PX imports from the Middle East and other regions in Q1 matched the volumes that arrived in the latter half of 2020.

While fundamentals going into the summer paint a bearish-to-stable picture, the annual wild card of Atlantic hurricane season may shake up market dynamics and introduce volatility.