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Feature: China's high petrochemical inventories dampen trade activity in August

Highlights

Vessel waiting times increase

Inventory pressure spurs toluene exports

MX inventory at more than 5-year high

Singapore — High levels of petrochemicals stored in China's tanks and warehouses, much of which was purchased during the price trough in March-April, are slowing import demand into China in August, market sources said.

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Despite inventory drawdowns in recent weeks, styrene monomer stockpiles remain above 300,000 mt in East China, keeping shore tanks filled to the brim, due in part to concentrated arrivals and a slowdown in consumption.

Tank shortage and port congestion have led to an average 8-10 day waiting time for vessels offloading, one market source said, while traders were heard to be bearing higher demurrage costs, especially for import cargoes.

"Given ample supplies and tight storage space, nobody in China is in a hurry to buy styrene cargoes at present," a downstream producer source said.

Benzene commercial storage swelled to more than 283,000 mt in the last week of July, with further increases expected in the first week of August.

With deepsea parcels from Europe and the US set to discharge over the next few weeks, benzene stocks are set to rise further and tank companies are likely to impose stricter rules to ensure a smooth flow of material in and out of tanks, one source said.

The protracted storage of material in tanks has prompted tank companies to consider imposing overdue fees to encourage faster drawdown. It has also proven a challenge for earlier-traded CFR China cargoes, with at least one trade heard unwound because buyers were not able to place cargoes in tanks.

POLYESTER CHAIN SLUGGISH

Isomer-grade mixed xylene inventory in East China hit a five-year high at 134,000 mt August 2; it was last higher in mid-March 2015, S&P Global Platts data showed.

"There is a huge issue on tank storage in China, hence the low prices," an aromatics trader said, referring to aromatics spot prices, which have recently hit record lows against feedstock naphtha.

With supply chains disrupted by the COVID-19 pandemic, producers and end-users of paraxylene and its downstream purified terephthalic acid said they have become accustomed to high inventories, but this has led to operational difficulties as producers look to load at the earliest possible laycan and buyers request that cargoes arrive later in the month. The result is an "operational mess," one source said.

PTA inventories in East China are currently estimated at 3.8 million-3.9 million mt.

Adding further bearishness to PX, more PTA turnarounds are expected over second-half August to October due to the high inventory. Heightened US-China tensions in recent days pose further challenges, market sources said.

China's domestic yarn and fiber grade polyethylene terephthalate inventories remain high for both producers and buyers, with the overall textile-making inventory at 37.8 days in East China and limited export orders from the clothing sector resulting in weak buying interest for PET.

Inventories of another fiber-related product, monoethylene glycol, have eased to around 1.38 million mt, although this level is still considered high. Operating rates were heard at around 50% as end-users adjust to poor demand and high stock levels.

GASOLINE BLENDSTOCK PRESSURE

High MTBE inventories in China have dashed expectations of demand improving prior to the festive season in China.

"There are long holidays at end September and early October in China, which tend to increase the stockpile demand prior to that, however the positive demand expectation is increasingly pressured by the current high inventory level," a market source said, adding buyers were reluctant to import as they grappled with high tank storage costs and demurrage risks.

High toluene stockpiles have pressured some domestic suppliers in China to export to neighboring countries, with several market sources saying two parcels of toluene totaling 8,990 mt were exported in June.

The FOB Korea toluene marker touched an historic low against CFR Japan naphtha physical on July 21 at minus $2.125/mt, the lowest since Platts began reporting the data in 1994.

The Asian phenol market has also been significantly impacted by tank shortages and severe flooding. The CFR China price tumbled $89/mt week on week to $540/mt on August 4, while the CFR Southeast Asia marker plunged $131/mt to $699/mt.

"Many vessels in China [are] lining up for discharging and need to wait for at least seven to 10 days," a Chinese phenol source said August 4.

China's coastal methanol inventory has also swollen to around 1 million-1.3 million mt in the past two weeks on the back of ample oversesas supply and lackluster domestic demand, with the discharging rate slowing as flooding impacts some downstream demand, trade sources said.