South American phthalic anhydride producers were being hurt by having their orthoxylene contracts tied to US and European orthoxylene contracts, industry sources said.
South American PA makers are faced with a continuous stream of Asian-origin, mainly Korea made, phthalic anhydride that arrives in South America at just over the price of their OX costs.
South American PA producers, particularly in Brazil, have OX contracts that are based 50% on the US contract, and 50% on the European CP. While there is some room for negotiating, a source said, there's not much the PA makers can do to get a more competitive OX price in order to fend off imports.
Looking at the contracts year-to-date shows the challenge the South Americans have had. From January to June the OX CP in the US averaged 59.5 cents/lb ($1,312), while the European CP averaged Eur935/mt ($1,318/mt using an average exchange rate of 1.41 Euros/USD.)
A 50-50 combination of the two contracts would put the contract for buyers in Brazil at about $1,314/mt. Phthalic anhydride imports have been arriving into various South American ports at $1,300-$1,350/mt CFR over the last several months, PA makers said.
When asked if there could be an Asian component to the OX contract, a PA maker in Brazil said they will try to change the current formula but it's been difficult to have the producer, Braskem, agree to a change.
The FOB Korea spot OX price has averaged $1,277/mt over the same year-to-date period. Having an Asian OX component in the contract would help to lower the price, but it would not be a significant enough change to keep Asian PA imports out of South America, data showed.
"They're (Korean producers) basically selling the PA into South America at cost to keep the plants running at higher rates," a US PA maker said.
