Asia's paraxylene market is seeing more delays in the declaration process for October-delivery cargoes, as the narrowing PX-naphtha spread resulted in more Chinese end buyers struggling to find outlets amid a buildup of inventories, market sources said this week.
September in particular, has seen the PX-naphtha spread plummet to a near 30-month low of $310.25/mt on September 28, S&P Global Platts data showed, amid volatility in the purified terephthalic acid futures market and higher imports into China. Naphtha prices in contrast, were led higher by firmer crude oil values.
The spread between the CFR Taiwan/China PX and CFR Japan naphtha markers was last lower on April 1, 2015, at $308.50/mt, Platts data showed.
As of September 28, the PX-naphtha spread averaged $372.98/mt so far this year, or $22.68/mt lower from the average in 2016, in part reflecting a 10.63% rise in China's PX imports to 9.07 million mt over January-August.
Anticipating firmer demand down the road with potential PTA startups, a lot of PX cargoes imported into China have been stored in tanks, while consumption has so far remained nearly flat from 2016.
As more inventory builds up at a number of locations such as Jiangyin and Dalian, the process of allocating cargoes has been strained to the limit this year, with each month bringing a spate of woes for much of the market.
"Post-declaration [September 15] for October cargoes, I waited for a week before I received a discharge port, while I know there were other sellers who have received messages asking for a change in port, with the vessel on the water and due to reach in a few days' time," said a Southeast Asian trader.
During the Platts Market on Close assessment process, there were 28 trades for October-delivery cargoes, seven more than for September delivery. Buyers were Wanxiang Singapore (one cargo), SKGC Singapore (one cargo), Grand Petrochemical (11 cargoes) and GS Caltex (15 cargoes).
Sellers included Wanxiang Singapore (eight cargoes), OTI (four cargoes), Zhejiang Yisheng (three cargoes) and Koch (one cargo).
Another trader said a few sellers who had nominated first-half October as the delivery laycan were facing some resistance from buyers further down the trading chain.
"The reason being cited by our counterparty is that the final buyer in the chain, and the ultimate receiver of the cargo is unable to receive the cargo during the Chinese National [Day] holiday period in early October," said a trader in one such chain.
"During an extended holiday, it is not uncommon for PTA makers to carefully plan deliveries well in advance and request their sellers to accommodate a revision in the delivery period of a few cargoes," a source with a Chinese PTA producer said.
"Suppliers factor this in, so the flow of cargoes to a PTA maker's terminal over long holidays like the Lunar New Year and the National [Day] holidays will reduce. However, traders who buy spot cargoes should budget for the possibility of the seller declaring during the holiday period, and accordingly should already have an outlet ready," he added.
Others were more blunt.
"If the holidays are cited as a reason for not being able to receive a vessel, then the shipping market should cease to function on the weekend, and also at night, when people are asleep," said a Chinese trader.
PX PRODUCERS PEG HOPES ON POTENTIAL PTA STARTUPS
"The market is struggling under the weight of a lot of these cargoes", "end-users have more than enough in their tanks", "inventory across China and South Korea is high" have been a common refrain across much of the industry this year.
What is undeniable is that Chinese imports of PX continue to rise on a year-on-year basis as the PTA industry, which has long been in the red, is returning to a period of profitable operations, on the back of a widening spread from PX.
So much so, that PX producers are pinning their hopes on potential restarts restoring some of the balance to the supply-demand equation, currently skewed in favor of the buyers.
Xianglu Petrochemical in Xiamen, a PTA plant with a nameplate capacity of 4.5 million mt/year is targeting a restart of two of its three PTA lines in November, according to a company source, and is estimated to require 23 PX cargoes each month as feedstock, assuming an operating rate of 70%.
Furthermore, Oriental Petrochemical (Taiwan) Co. Ltd. plans to start up its 1.5 million mt/year PTA plant in October, with only government approval pending, while Jiaxing Petrochemical, part of China's Tongkun Group, aims to start up its new 2.2 million mt/year PTA plant at Zhapu, Zhejiang province, in the second half of October.
Even if some of these startups fail to materialize on time, as some believe will be the case, a PX-naphtha spread in the low-$300s/mt does not mean that producers are suffering.
"At a spread of $220-$250/mt from naphtha, PX producers can break even quite comfortably," a Southeast Asian producer source said, while traders have indicated spreads of $250-$270/mt to be reasonable.
"The spread is merely reflecting the balance in the market, which at the moment is in favor of the buyers, so it's really just market fundamentals playing out. It's inconceivable that any Asian producer would even consider cutting operating rates when PX production still remains so profitable," the Southeast Asian producer source added.
