The European paraxylene market is seeing significant changes this year as fundamental shifts in global demand and supply yield opportunities and challenges for the region. The start-up of a new downstream PTA plant in Portugal has placed the region in a net short position, and Europe will now have to compete with other regions for paraxylene. During the same period, the introduction of tariffs on US cargo by China has shifted tradeflows.
Join the discussion with S&P Global Platts European xylenes editor Ben Brooks, and the team managing editor Ng Baoying, on these recent changes. Both have recently returned from the annual EPCA conference, where these topics, among others, were hotly discussed.
Hello and welcome to S&P Global Platts Commodities Spotlight podcast. I'm Ng Baoying, managing editor at the EMEA petrochemicals team, and I'm joined today by my team mate Ben Brooks, editor, who covers the xylenes market. Both of us have just returned from the major annual petchems conference in Europe, EPCA. During this forum, we met with many market participants, and paraxylene was very much in the limelight. The European paraxylene market is seeing significant changes this year as fundamental shifts in global demand and supply have created both opportunities and challenges for the region. The start-up of a new downstream PTA plant in Europe for example, has placed the region in a net short position, and Europe will now have to compete with other regions for paraxylene. Ben, why don't you set the stage for us, and share how the paraxylene market, its upstream, and its downstream markets, are transforming in Europe.
• Traditional centre of global demand has been Asia, with pricing in Europe and America often at a freight netback to the Asian market.
• But recent changes in supply and demand look like they will alter this dynamic
• Chinese tariffs on US origin paraxylene, Indorama's Artlant PTA plant in Portugal and a raft of new capacity opening up in China and the Middle East over the next few years are set to change this traditional flow of material.
• In China, the main demand for paraxylene comes from the polyester fibre market, for making clothes and other textiles.
• In Europe, demand comes from the PET market, used to make plastic bottles and food trays etc.
• In Europe, the capacity of the Artlant PTA plant is so large that it looks like it could absorb all European PX production and still be short of supply.
• In China, new capacities coming online in the next few years could see China become self-sufficient, no longer relying on imports.
• So the question is: where will the product reliant on exports to China go? And where will Europe source its material from?
With PX being a very globally traded product, we've also heard lots of opinions on tradeflow changes this year. For example, US paraxylene hardly moves to India. But we've seen that happen recently, with a cargo due to arrive in November despite logistical challenges. The 10kt cargo is headed to Haldia, and due to berthing limitations, the paraxylene will first load in the US on a large vessel, head to South Korea where there's some demand for PX and deliver some. After that, 10kt will be reloaded onto a smaller vessel to India. A source based in India that I spoke to at EPCA noted that this rare trade route is likely to be an opportunistic one for paraxylene. Ben, you mentioned that sources have told you that either the Middle East or the US could become a regular source of PX for the region. Which do you think is more likely?
• We have indeed seen some opportunistic trading, for instance from the US to India.
• We have also seen US material heading to Asia, for example to Korea, to replace the domestic Korean material that has been exported to China to get around tariffs.
• The Middle East, though, looks best placed geographically, to benefit from this changing market.
• Already we have seen substantial volumes move to Europe. Market participants have said this is down to tight European supply and cheaper prices in the Middle East.
• The impact may particularly be felt on Southern Europe, which acts almost like a different market to Northern Europe because shipping between the two regions is complex and expensive.
• Shipping to Southern Europe from the Middle East, by comparison, is easier.
• This trade route is well trodden, with PTA from the Artlant plant going to Egypt.
• Shipping from the Middle East to Asia is also a real possibility, with freight times significantly lower than from Europe.
• What this could mean for Europe is more competition with Asia.
• We may see that prices in Europe have to rise to the levels seen in Asia, in order to attract Middle Eastern volumes.
BAOYING: Looking upstream to mixed xylenes, you mentioned earlier that you've spotted an interesting trend, where the arbitrage window to the US has opened. Is that likely to see cargo flows?
• Shipping MX from Europe to the US, and indeed Asia, is a complicated business.
• For starters, European producers do not make as high a quality of MX as they do in the US and Asia.
• So buyers in the US either have to be very short of product themselves to think about imports, or demand hefty discounts.
o Some European traders say this can be in the region of $15/mt.
• The next complication is shipping itself.
o So, the MX arrives on a barge in NWE, it then needs to be unloaded into storage tanks, and then onto a vessel capable of crossing the Atlantic.
o Of course you need to pay for tank storage. This costs about $10/mt – depending on how long you need the tank for etc.
• Then there is the general lack of availability, on the spot market at least, of MX in Europe – meaning often traders can only get their hands on 1kt, not 3-5kt. This increases freight costs hugely, and of course reduces the overall profit as there is less material.
• Then you have finance costs and insurance costs and demurrage risks to be factored in. Then, of course, you have to actually make a profit, otherwise the whole exercise is pointless. So, traders have said they tend to look for a gross profit – simply US market price, minus freight to US Gulf, minus EU price – of around $75/mt.
• In the past year, the gross profit has only been above that for 10, non-consecutive days.
BAOYING: The recent strength in PX prices have also had a knock on effect on its downstream markets. For example, an Indonesian producer is looking into restarting its PTA plant. This plant, which is integrated with its downstream production, has been dormant since late 2015. The company has been purchasing PTA in the open market to service its downstream polyester fiber production. However, due to volatile PTA prices, the company is considering producing its own PTA once again. And Ben you've also seen some changes even further downstream, in PET.
• Directly downstream of PX is PTA, which, mainly due to the futures market in China, has been extremely volatile this year, with price increases/decreases of $30 per day not uncommon.
• In Asia, this has pushed up the risks and costs for polyester fibre producers where there is also strong demand at the moment. In Europe, the costs of PET have increased as well.
• Virgin PET spot prices have been at six year highs throughout September, at a time when prices generally fall due to lower demand. But due to such high feedstock prices, among other things, the costs accrued by producers has been very high and, as much as possible, this has been passed down the chain.
• So margins have been squeezed and as much as possible, costs have been passed down the chain.
Thanks Ben, and thank you for listening to our podcast. If you have any thoughts on our discussion that you'd like to share with us, drop us an email at email@example.com.