Singapore — The outlook for isomer-grade mixed xylene in the first half of 2021 is beset with uncertainty as production margins for MX and downstream paraxylene as well as other aromatics have been unusually poor in 2020, and producers are carefully considering their overall refinery production going into the next year.
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In Asia, more downstream PX capacity is set to start up, including phase two of the massive Zhejiang Petrochemical and Saudi Aramco's Jazan, adding a total 5.85 million mt of PX output to the existing pool in 2021.
However, MX demand is not expected to receive a boost from these new PX plants as they are mostly self-sufficient in upstream feedstock supply.
Instead, many market participants are concerned that Asian and Middle East PX plant capacity additions will further erode PX margins and lead to lower operating rates at PX plants outside China, thereby leading to an imbalance in MX demand and supply dynamics.
In 2021, new reformer units from Petrochina at Jinxi and Jinzhou, as well as Lianqiao Petrochemical are expected to add close to 1 million mt/year of new MX capacity in China, market sources said. No new capacity was heard starting up outside China.
However, margins for toluene disproportionation units, which use toluene to produce benzene and isomer-MX, remain unclear, although those have been improving on the back of rising benzene prices at the end of 2020. If TDP margins remain poor in 2021, MX output may remain reduced.
Judging by the results of Taiwanese CPC's 2021 term MX tender, which was reportedly awarded at a premium of $3-$5/mt over Platts FOB Korea MX assessments, higher than the $2/mt premium awarded for 2020 term cargoes, the Asian MX market looks stable to firmer. However, market sources have discounted the results of this tender as most of CPC's term cargoes were awarded to traders. Term contracts between producers and PX makers may not settle at similar levels considering the poor outlook for PX and its margins.
Supply concerns weigh heavily in Europe
In Europe, a key concern for the market is availability of MX. Given the poor production margins, run rates were kept low throughout the second half of 2020, and may even continue into 2021, sources said.
The premium for Platts MX FOB ARA over Platts Reformate FOB ARA Barge averaged around $43/mt over June-November, which is considered uneconomical for MX producers, sources said.
With the prevailing length in the global PX market, downstream production margins are likely to remain under pressure, dampening downstream MX demand. As a result of slim margins, MX prices will remain more closely correlated to gasoline than in previous years.
Europe's gasoline demand outlook will be another key determinant in the MX road to recovery in H1 2021. Driving season is over and the market has moved into a seasonally weak demand period with less traffic on roads and butane in blends due to a more lenient winter gasoline RVP requirement. Should countries emerge from lockdown in H1 2021, and traffic return to roads, the MX and associated gasoline components markets may get a boost from an increase in demand for gasoline blending to make up for the persistently weak MX-PX production margin.
The recovery of the xylenes chain will be highly dependent on the scale of the economic recovery and how long the COVID-19 pandemic continues.
The US' 2020 pricing scenario to bleed into 2021
Factors that controlled the US' MX prices in 2020 are expected to contribute to poor economics in the new year, dampening spot prices.
The market expects tight MX supply and low PX prices to keep the prompt spot MX-PX spread sufficiently low -- an average of $56/mt in the third quarter -- to discourage any paraxylene producers from ramping up crystallization units or purchasing spot MX in Q2 2021.
The low volume of spot paraxylene produced in 2020 is not expected to increase in the coming months, market sources said, with the import economics more encouraging than domestic production.
US paraxylene imports increased nearly 45% between 2019 and 2020, S&P Global Platts data showed.
MX supply in the US will continue to be limited by reduced refinery operating rates in 2021, which in turn will be heavily affected by how the COVID-19 pandemic unfolds.
US oil demand in 2021 may be roughly 2.7 million b/d under 2019, according to an S&P Global Platts Analytics forecast in November. However, this may potentially create some upside to the poor refinery margins seen in 2020.
"Improvement is likely to begin in March or April due to several factors: recovering demand, lower product stocks, and improved gasoline cracks as refiners shift to summer specs," Platts Analytics wrote in a November forecast. "But it will be a slow, lackluster recovery."
Market participants said potential strength in spot benzene prices would lead to greater length in MX supply. The expected tightness in 2021 benzene supply may lead to improved toluene conversion margins, thereby increasing MX production.