Market and product

Outlook for orthoxylene (OX) in the northeast (NE) Asian market remains uncertain in the fourth quarter as tight supply will be outweighed by softer demand, market sources said on Tuesday.

Regional supply is expected to remain tight into the fourth quarter on the back of lowered production, maintenances and limited arbitrage movements.

However, demand from downstream sectors is also unlikely to pick up, thus balancing out any impact of tight supply on prices, the sources added.

In South Korea, two key producers had lowered production output at their OX plants because of weak OX/isomer-grade xylene spread, stemming from high feedstock costs.

A Taiwanese producer, Formosa Chemical & Fibre Corp, had limited spot OX cargoes as a fire at the facility had caused the company to shut their reformer.

The producer had started running their reformer unit at its Aromatics 3 facility at low rates after receiving government approval on 13 October.

Demand from China saw a slight improvement as end-users returned to the market seeking cargoes in anticipation of limited domestic supply.

China’s Sinopec Yangzhi Petrochemical will be shutting their OX unit at Nanjing in Jiangsu province in the coming days for a 40 day maintenance, according to a market source.

“With Yangzhi conducting a turnaround some buyers - expect domestic supply to drop and hence - returned looking for spot cargoes. This has helped push prices in the domestic market up,” said a China-based trader.

Discussion for Chinese OX spot cargoes rose from yuan (CNY) 5,800-5,900/tonne on 25 September to CNY6,000-6,1000/tonne by 16 October, according to ICIS data.

Despite the gains seen in the domestic Chinese market, discussions for imported material came under pressure on the back of sharp drops in the upstream crude futures and feedstock isomer-grade xylene prices.

A stream of negative Chinese economic data, coupled with lower demand from America, had dented market sentiment amongst end-users.

In addition, the weak outlook for downstream markets such as phthalic anhydride (PA) and 2-ethylhexanol (2-EH) contributed to the cautious stance undertaken by buyers.

Some PA makers were lamenting the lack of buying activities from the overall plasticizer sector, resulting in a build-up of stocks in their tanks.

“Currently, the [derivative] plasticizer sector is suffering from the weak Chinese economy. A lot of them are buying [upstream] PA on a need-to-basis, resulting in several PA producers sitting on high stockpiles. Who would really want to buy [feedstock] OX cargoes now?” said a China-based PA maker.

Subsequently, import trades in the northeast Asian region remained thin as PA makers maintained low operating rates to cope with rising stock and sluggish demand while cutting losses.

Demand for imported OX material was reduced by the industry-wide output cuts in the overall PA plant operating rates to about 50-60%, said market sources.

Producers with catalysts installed at their plants were using naphthalene as a replacement feedstock as persistently high OX prices were squeezing margins.

In the Chinese market, domestic naphthalene prices were transacted at CNY2,100-2,300/tonne ex-tank while OX prices were almost triple the cost at CNY6,000-6,100/tonne ex-tank as of 16 October.

Moving forward, some players expect OX demand to falter in the coming weeks as several PA plants would be undergoing maintenances.

A South Korean PA producer would cut production output by half in the second-half of October due to repair works. Another South Korean producer would be shutting their 80,000 tonnes/year PA plant on 1 November for two weeks due to a scheduled maintenance at their entire Ulsan petrochemical complex, according to market sources.

A third producer, South Korea’s OCI will be shutting one their three PA units in Pohang for a scheduled maintenance in the coming days for approximately 10 days, according to a source.

In Japan, two PA producers were also looking to shut their plants for maintenances between October and November, according to market sources.

“The current tight OX supply spot market is offset by the production cuts and maintenances. I would say supply and demand is balanced,” said a South Korea-based trader.