Asian isomer MX-naphtha spread shrinks to historic low on weak MX demand

The spread between isomer-grade mixed xylene and naphtha narrowed to record low $11.63/mt Nov. 16, according to S&P Global Platts data dating back to April 2006, as isomer-MX prices weakened further while feedstock naphtha prices remained firm.

Demand for isomer-MX both as a feedstock for paraxylene and as a gasoline blendstock has turned sluggish in recent weeks, and was impacted further when China's Zhejiang Petroleum & Chemical in late October received a quota to import 12 million mt of crude oil -- which enabled it to increase output across its product slate, in turn raising supply of both PX and gasoline in the market and adding pressure to prices and margins, market sources said.

Isomer-MX was assessed at $782/mt FOB Korea and $819/mt CFR China Nov. 16, less than a month after the CFR China marker hit an all-time high of $891/mt on Oct. 18, Platts data showed.

Meanwhile, naphtha demand as a steam cracker feedstock was being supported by healthy olefin margins. The key CFR Northeast Asia ethylene to C+F Japan naphtha spread tracked closely by steam cracker operators remained well above the typical breakeven level of $300-$350/mt for non-integrated producers, keeping operating rates near or at full capacity, market sources said. The spread widened $1/mt day on day and $6.50/mt week on week to $379.625/mt Nov. 16.

Naphtha 'toppish'

However, market sources said North Asia has started receiving naphtha arbitrage cargoes from the US, which was expected to cap further upside.

"I think the market looks toppish. If everything [remains the] same, I don't see further upside," a Singapore-based trader said.

"End-users expect a little more supply from the EU or the US," a South Korea-based end-user said.

The tapering strength was reflected in the CFR Japan naphtha physical crack against front-month ICE Brent crude futures falling $9.625/mt day on day to $148.25/mt at the Asian close Nov. 16, Platts data showed.

An end-user of MX said slim margins could prompt producers to cut MX production, although this may not be so simple as MX is usually produced alongside benzene and toluene, and reformers also produce hydrogen as a byproduct.

The toluene disproportionation route to making MX was also weak, with the MX-toluene spread hitting a 7-year low of minus $77/mt on Nov. 11, Platts data showed. The spread was last lower Oct. 24, 2014 at minus $80.50/mt.