Market and product

Orthoxylene (OX) prices in northeast (NE) Asia surged to hit the year’s highest level on healthy demand with further gains expected, according to industry sources on Thursday.

OX prices were assessed at an average of $830/tonne CFR (cost & freight) NE Asia for the week ended 11 November, the highest since 10 July 2015, according to data compiled by ICIS.

The price rally started on 7 October, upon the end of the Golden Week holidays in China.

In China, firm demand for downstream phthalic anhydride (PA) cargoes had encouraged some end-users to ramp production higher, hence increasing demand for feedstock OX products.

Most buyers were looking towards the domestic market for prompt delivery cargoes.

Subsequently, discussions for Chinese OX cargoes jumped by almost 10% week on week to CNY7,300-7,600/tonne ex-tank. This was equivalent to $900-937/tonne ex-tank on an import parity basis.

Chinese OX major, Sinopec subsidiaries, had raised their ex-works OX offers by CNY500/tonne in east China to CNY7,100/tonne during the week ended 11 November.

According to market participants, the company raised its prices on the back of firm demand and short domestic supply.

“Sinopec has been raising their offers since we got back from the Golden Week holiday but we have no choice but to pay up or we won’t have enough feedstock to last into December,” said a northeast Asian end-user.

Supply of locally-produced material is expected to remain tight into December as Sinopec Yangtze Petrochemical had lowered it OX output in favour of its co-product paraxylene (PX).

However, the company has ramped up OX production on 11 November due to the better earnings though the additional volume would not be available until mid-December, according to market sources.

“Sellers are extremely bullish right now because they know there is not much cargo available in the market. It is one of the reasons the domestic prices have just continued jumping,” according to the northeast Asian end-user.

Downstream PA prices had also posted gains amid tight supply, which had boosted buying sentiment for raw material.

“Plasticizer market is improving now. There are more orders coming in on a weekly basis and this is helping push PA prices higher which means we can cope with the increases in OX prices too,” said a second northeast Asia based PA maker.

Some PA plants had catalysts that allowed them to use naphthalene as an alternative feedstock due to its competitive pricing.

Several naphthalene-based PA plants in China had failed the tighter environmental inspections and were required to shut until further notice, reducing spot PA availability.

On that basis, OX-based producers were looking to ramp operating rates higher to take advantage of the firm demand.

End-users are trying to build up their OX inventories to gain negotiating clout for the 2017 term price negotiations. Comfortable inventories means that end-users will be able to negotiate prices at their own pace.

Others were looking to bring forward their pre-Lunar New Year stockpiling activity to December as the holiday will start on 27 January.

They expect demand and supply to remain tight with prices to continue climbing into December.

“Our customers are chasing us for December cargoes now. However, it is hard to secure additional cargoes as the regional market is super tight right now,” said a northeast Asian trader.

Downward price pressure in the upstream isomer-grade xylene market, coupled with increases in OX discussions, had encouraged some OX producers to look at increasing their output.

A South Korean producer had raised its OX operating rates as margins were deemed healthy and had sold its first spot cargo of the year.

“Lotte Petrochemical has been keeping their OX production at minimum but now, with OX prices surpassing PX, they are encouraged by the profits and had increased their operating rates,” according to a South Korea based trader.

“They sold 2,000 tonnes of OX for first-half December arrival to a Chinese trader. This is their first spot cargo seen since last year,” added the trader.

Most market participants polled expect prices to continue upwards momentum into early December as OX stockpiles will remain low. Despite the increases in OX output at regional plants, these products would not be ready until mid-December.

“We will only start seeing the additional cargoes from Sinopec in mid-December and Lotte’s additional volume in mid to end-December. This is too late for the market as most buyers will have to start closing their trading books by mid-December and might not be able to arrange for banking and shipping documentation in time,” according to the trader.

Several players had started negotiations for 2017 contractual volumes and said producers were hiking offers in view of the limited regional supply.

A key Indian supplier to both southeast and northeast Asian regions had increased its premiums by $9-10/tonne because of limited cargo availability next year following an increase in domestic contractual volumes.

Iranian end-users were seeking higher term quantity due to the lack of Iranian cargoes seen in 2016.

Moreover, the Indian supplier would be diverting more raw material towards the production of PX for captive use and would have limited OX supply.

To meet the higher regional consumption, the OX producers intend to reduce contractual volumes to traders and Chinese buyers, according to market sources.

“Right now, we have just started negotiations with Reliance. The alpha for next year has almost doubled and quite frankly, we are not sure the end-users would be able to accept that price as we primarily do back-to-back business,” said a northeast Asian trader.