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Asian paraxylene hits 26-month high on improved short-term balance, rising oil prices

Highlights

Demand concerns linger on weak downstream Chinese PTA fundamentals

PX-MX spread rebounds to one-year high

Asian paraxylene hit a 26-month high on June 24, buoyed by rising upstream oil prices, as firm buying interest and an improvement in short-term supply-demand balances propelled prices higher.

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The PX CFR Taiwan/China marker soared to $914.17/mt on June 24, $14.50/mt higher on the day, Platts data showed. The marker was last higher on May 2, 2019, at $938.50/mt.

Market sources attributed the firm prices to a combination of supply and demand drivers in the week starting June 21. The unplanned week-long shutdown of one of Zhejiang Petrochemical's PX lines on June 21 and the delayed start up of the company's Phase 2 No. 1 PX line to mid-July from late June had impacted supply, while the startup of Yisheng New Materials Co. Ltd.'s new 3.3 million mt/year PTA plant on June 19 had boosted demand. Though the new PTA unit has yet to produce on-specification material, the earlier-than-expected start up has increased short-term demand, a PX trader said.

The short-term fundamental support has led to a strong buying appetite in the spot PX market, especially around the August laycan, but offers, on the other hand, have thinned.

Meanwhile, rising PX prices have propelled Asian PTA prices to near 23-month high at $700/mt CFR China on June 24, Platts data showed.

Nevertheless, ample supply continues to erode PTA profit margins, with the PTA-PX spread at $92/mt for dollar-denominated cargoes and Yuan 464/mt for China domestic PTA on June 24, Platts data showed. The margins were higher at $160/mt and Yuan 1,008/mt, respectively, when the PTA CFR China marker was assessed at the same level on Aug. 2, 2019.

Despite major Chinese PTA manufacturers cutting term supply and shutting plants for maintenance to manage the supply glut since March, trade participants remain concerned that inventories will rise further following the recent start up of Yisheng's 3.3 million mt/year PTA line.

Market participants have been discussing about potential turnarounds, or adjustments to operating rates, in response to the weak PTA fundamentals, but no major supplier has yet to confirm any near-term maintenance.

The uncertainty surrounding Chinese PTA run rates as a result of poor fundamentals and margins has led PX market sources to take a cautious stance on the demand outlook for the second half of the year.

Cautious approach among isomer-MX market participants

The spread between CFR Taiwan/China PX and feedstock FOB Korea isomer-grade mixed xylenes physical posted a strong $33.50/mt week on week rebound to $136.17/mt on June 24, but some participants failed to shrug aside lingering bearish sentiment in the isomer-MX sector.

While the uptrend in PX prices has provided isomer-MX with a silver lining, helping to erase nearly a year of lackluster, rangebound price movement, isomer-MX market participants remained grounded in their PX outlook.

Most isomer-MX market sources were of the opinion that supply was still substantial in the downstream PX market and observed that the opportunity to sell isomer-MX for PX production remained marginal.

The peak maintenance season for refineries in the Far East is drawing to an end, which suggests that key reforming units could be up and running soon as the market progresses beyond August. Additionally, poor gasoline-blending demand this year will further limit demand for isomer-MX.

PX-naphtha spread at one-month high

Despite crude prices driving naphtha to a multi-year high, the key spread between PX CFR Taiwan/China marker and C+F Japan naphtha cargo values has widened to a one-month high of $250.92/mt, up $16.75/mt week on week, Platts data showed. The spread was last higher on May 24 at $251.545/mt.

Activity in the Asian naphtha market has been muted for the current H1 August delivery cycle into North Asia, weighed down by the high flat price, the slow ramp up of new steam crackers in South Korea, and narrowing olefin margins.

While Western arbitrage volumes had added to supply, market participants anticipate the July-loading arbitrage program to be thinner as Europe's naphtha complex had rallied both petrochemical and gasoline blending demand, sources said.

This narrowed the front-month July East-West spread to over a seven-week low of $10.75/mt at the Asian close on June 24, Platts data showed.

Furthermore, Asian steam crackers were considering run cuts for August as the key CFR Northeast Asia ethylene spread to C+F Japan naphtha had shrunk to $206.75/mt on June 24, down $53.75/mt week on week, Platts data showed. Although market sources said the typical breakeven spread for non-integrated producers is $350/mt, and $250/mt for integrated producers, there was support from a firm downstream market and steam cracker issues.