Asian PX-naphtha spread narrows as downstream demand weakens

Production margins for Asian paraxylene have dropped, with further pressure anticipated in the coming weeks as downstream demand in China weakens, while any potential support from a gasoline blending pull in the US seems increasingly unlikely, sources told Platts, part of S&P Global Energy.

The Asian PX-naphtha spread had steadily recovered since mid-January as supply cuts in Asia took effect, but the rebound was mostly short-lived, according to sources. At the March 12 Asian close, Platts assessed the PX-naphtha spread at $184.88/mt, down from this year's highest of $223.30/mt on Feb. 10.

As 2025 began, expectations for a sharp rise in the spread were modest, given the weak outlook for gasoline blending demand ahead of the US summer driving season, coupled with sluggish downstream activity in China, traders said.

But with supply cuts taking effect, PX production margins slowly improved and were expected to gradually rise to more desirable levels of around $225-$250/mt, a trader in Singapore said.

From Jan. 2 to date, the PX-naphtha spread has averaged $203.29/mt, compared with $346.20/mt in 2024 and $322.65/mt in 2023 for the same period, Platts data showed. A spread of around $330-$350/mt is considered the breakeven level for most PX producers.

Problems aplenty for PX

The real concern for PX is the weak demand throughout the entire chain.

Despite low PX spot prices, buying interest from purified terephthalic acid producers has barely improved, as the downstream polyester markets remain sluggish, a trader in China said.

"Inventories for polyester [products like] partially oriented yarn, fully drawn yarn and drawn textured yarn should have decreased, but now they are on the higher side," the trader said.

In the week to March 7, stocks for POY were around 25 days, FDY around 31 days and DTY around 34 days, the trader added. Inventory levels nearing 40 days of supply are considered concerning for producers.

Furthermore, US President Donald Trump's tariffs and the uncertain timelines for their implementation are impacting market sentiment, a trader in Singapore said, adding, "From macroeconomics to industry fundamentals, everything is under pressure, so prices will be sacrificed."

PTA producers in China have opted for turnarounds in the coming months to combat weak margins. "China is [in] bad [shape as] many integrated [PTA] producers are suffering inventory losses," a PTA producer in Asia said.

MX hit by PX slump

Upstream from PX, Asian isomer-grade mixed xylene prices have been falling rapidly in the week started March 10, down $33/mt at $715/mt FOB Korea -- marking the lowest level since Dec. 11, 2024, when they were at $714/mt, according to Platts data, as PX remains sluggish and the arbitrage to the US has been closed since February.

Domestic Chinese MX prices have also dropped in the week, with the backwardation between prompt and April market prices steepening sharply, as April is expected to see ample MX deliveries to China, while the prompt market remains relatively tight.

Some traders described the fall in domestic prices as a "collapse" and attributed it to weaker market sentiment, as large amounts of cargoes were expected to arrive in the coming period, with a Chinese trader saying, "It is also due to gasoline and PX both being bad and demand being weak."

In a negative development for MX producers, firmer naphtha has caused the MX-naphtha spread to narrow, dropping to $83.88/mt on March 12 -- the lowest since Jan. 3, when it was at $80.50/mt.

On the contrary, the PX-MX spread widened to $101/mt over the same period -- the highest since Feb. 19, when it was at $103.67/mt, Platts data showed.

Naphtha market surges

The Asian naphtha market remains supported as physical cargoes continue to be awarded at high levels.

In the latest tender by South Korea's YNCC, which closed March 11, the company purchased four cargoes: two for H2 April delivery and two for H1 May delivery to Yeosu. The H2 April cargoes were awarded at a premium of around $16.50/mt to Mean of Platts Japan naphtha assessments, CFR, while the H1 May cargoes were concluded at a premium of around $9.75/mt to MOPJ naphtha assessments, CFR, according to trade sources.

Previously, YNCC bought one 25,000-mt cargo of naphtha for H1 April delivery to Yeosu at a premium of around $10.75/mt to MOPJ naphtha assessments, CFR, according to trade sources. The company also purchased another cargo for H1 May delivery at a discount of 50 cents/mt to MOPJ naphtha assessments, CFR.

Asian naphtha cracks rose as naphtha prices gained pace relative to crude prices, driven by mounting geopolitical tensions amid the tariffs between the US, Canada, Mexico and China, as well as OPEC+'s decision to unwind production cuts. However, global economic challenges, slowing petrochemical demand recovery and volatile crude prices will continue to pressure Asian naphtha cracks.

The Platts-assessed CFR Japan naphtha physical crack against front-month ICE Brent crude futures stood at $106.58/mt at the March 12 Asian close, up 90 cents/mt day over day and $7.95/mt week over week.

Moving forward, industry sources anticipate the Asian naphtha market to weaken slightly due to an increase in arbitrage flows, with one source saying, "Last cycle, Europe and the US had turnarounds, but they are coming back, resulting in more naphtha supply."