Asian aromatics prices on a CFR China basis are facing downward pressure from rising inventory levels, Platts data showed Monday. CFR China toluene and styrene monomer prices are currently below FOB Korea prices.
With styrene monomer, the spread between CFR China and FOB Korea prices flipped to negative on February 8, as cost pressures pushed the FOB Korea benchmark up $8/mt day on day to $1,423.50/mt while the CFR China benchmark fell $2.50/mt to $1,423/mt under the weight of high inventory and relatively low domestic prices. The negative spread increased from 50 cents on February 8 to $8.50 on February 10.
The commercial port inventory level of SM in the east of China hit its highest level to date in 2012 at 151,300 mt in the first week of February, but slipped marginally to 148,700 mt last week. The level was at 145,000-160,000 mt in the same period of 2010. An inventory level of 70,000 mt or less is typically considered normal, but during the Lunar New Year holidays, which this year fell in the last two weeks of January, consumption slows as factories shut and logistics slow down, leading to port congestion.
The CFR China-FOB Korea spread would remain negative or narrow "at least until the inventory level comes down to around 70,000 mt," an SM trader predicted Monday.
CFR CHINA TOLUENE HURT BY CHEAPER DOMESTIC PRICES
The high toluene inventory level in East China cast a pall on the domestic East China price, which was heard at Yuan 8,750/mt or $1,150.34/mt on an import parity basis on February 3, down from Yuan 8,800/mt at the start of that week. A week later on February 10, the domestic price had fallen to Yuan 8,675/mt.
The same day, the East China toluene inventory level was heard at 80,000 mt, up 14.29% from the previous week. The previous week, the inventory level had risen 7.69%.
The low domestic price in China made import prices extremely unattractive to buyers. CFR China toluene was assessed at $1,198.50/mt on February 3, around $48/mt higher than domestic toluene. The buoyant CFR China price was supported largely by FOB Korea prices.
South Korea, the region's largest producer of toluene, was offering FOB Korea prices at a premium due to upcoming turnarounds, which will result in tighter supply. Still, the lack of buying support from the region's largest toluene buyer, China, pushed the CFR China-FOB Korea spread to below freight parity.
On February 3, FOB Korea was assessed at $1,188.50/mt, just $10/mt below that of CFR China. Freight for a 2,000 mt cargo of toluene from South Korea to East China was assessed at $25-27/mt then.
Since then, the situation has exacerbated, with FOB Korea last assessed at $1,187.50/mt on February 10, compared with CFR China at $1,188/mt and the domestic China price at Yuan 8,675/mt or $1,140.37/mt on an import parity basis.
MIXED XYLENES INVENTORY SOARS ON DEEPSEA ARRIVALS
MX inventory in East China hit 110,000 mt on February 11, soaring 60,000 mt or 120% from the start of 2012, when it was 50,000 mt. In South China, MX inventory surged 15,000 mt or 150% from a week earlier to 25,000 mt on February 11.
The increase was due mainly to the influx of cheaper US-origin deepsea isomer-MX cargoes that have been arriving in East China since the start of 2012. Market watchers estimated the January arrival volume to be at least 30,000-40,000 mt of isomer-MX -- and another 20,000 mt of deepsea isomer-MX is scheduled to arrive in February.
In addition, China National Petroleum Corporation has resolved production woes at its aromatics complex in Qinzhou in the Guangxi Zhuang Autonomous region and has been contributing at least 20,000-30,000 mt/month of off-specification isomer-MX since late 2011.
This has created enormous downward pressure, especially on solvent-MX prices, despite a bullish isomer-MX market currently, which is not affected due to the tight supply situation in both the US and Asia. Industry watchers had initially expected the solvent-MX market to track the rapid uptrend of the isomer-MX market, as the price spread between isomer-MX and solvent-MX is usually around $70/mt. Instead, the price spread widened to a four-month high of $160.70/mt on February 3 before narrowing to $158.80/mt last Friday.
Domestic solvent-MX prices slipped Yuan 50/mt from January 13 to Yuan 9,000-9,050/mt last Friday, or $1,197-$1,204/mt on an import parity basis. On a CFR China basis, solvent-MX prices remained rangebound at $1,190-$1,205/mt over January 13 to February 3 and saw only a $25/mt week-on-week surge to $1,230/mt last Friday on tight supply due to a technical glitch at a solvent-MX plant in Southeast Asia.
