Bullish sentiment helps Asian paraxylene hit record high as spread from naphtha widens – After recording the largest value in six months January 23 supported by tight supply due to turnarounds in the first quarter, the spread between the CFR Taiwan/China marker and the CFR Japan naphtha marker has begun a gradual retreat as latent sellers emerge from the shadows – the spread between the CFR Taiwan/China marker and the CFR Japan naphtha marker has begun a gradual retreat as latent sellers emerge from the shadows – Asian paraxylene naphtha spread - Arhive

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Bullish sentiment helps Asian paraxylene hit record high as spread from naphtha widens

Singapore (Platts)

Asian paraxylene naphtha spread After recording the largest value in six months January 23 supported by tight supply due to turnarounds in the first quarter, the spread between the CFR Taiwan/China marker and the CFR Japan naphtha marker has begun a gradual retreat as latent sellers emerge from the shadows.

The spread was assessed at $388.58/mt January 23, and was last higher at $389.75/mt July 13, 2017.

With major South Korean producers like GS Caltex and S-Oil scheduled to go into planned maintenance of the aromatics plants towards the end of February until early April, the turnarounds account for a loss in production of approximately 20 cargoes.

Additionally, returning stability in the downstream purified terephthalic acid market, where higher operating rates among recently restarted plants in East and South China has played a role in keeping demand firm.

“While some of this recent rise is explained by how firm crude prices have been in their rise above the $70/b mark, a lot of it also has to do with how bullish the downstream sector is. The purified terephthalic acid futures market barely reacted to news of a couple of short PTA plant shutdowns, and still continues to do well because the polyester sector further downstream is doing reasonably well,” said a South Korean PX producer.

“In the short term, there isn’t much of a downside to PX margins. As to how much it can rise, we can only wait and see,” he added.

NAPHTHA ON THE ROPES

On the upstream front, the Asian naphtha market is plagued with bearish sentiment as attractive prices for LPG fuelled competition between the two petrochemical feedstocks.

Benchmark CFR Japan naphtha dipped to a near five-week low at $596.75/mt January 23. It inched up over the next two days before dropping again to $598.50/mt Friday.

The prompt February Argus Far East Index propane swap stood at a $61.75/mt discount to Mean of Platts Japan naphtha January 25, plunging more than 80% from the first trading day of this month.

Moreover, a negative butane-propane spread at minus $18/mt posed further challenges for naphtha to stay attractive under the eyes of petrochemical makers as butane is another source for petrochemical production.

PX RETREATS SLIGHTLY

Since January 23, though, the spread has narrowed to $382.83/mt as of January 26.

“Once the spread hit $388.58/mt, and after PX prices rose to $988.33/mt on January 24, a lot of us who tried selling after the [Platts] Market on Close assessment process on that day found that there were no buyers left around the $985-$990/mt mark. That told me that the market had probably peaked,” a trader said.

Indeed, a major buyer in the market said that while the turnarounds over March were a factor, several of the more conservative sellers like Japanese trading houses who had “quite a lot of March cargo are only waiting to see how high the market will go before selling.”

“They sell one cargo everyday, but wait for a sustained decline to sell all of their cargoes all at once, just in case the next day’s market reverses the trend. At the first sign of a sustained downturn though, that’s when they’ll come out,” he said.

At the recent prices of $975-$990/mt CFR Taiwan/China, the arbitrage window for cargoes flowing into Asia from the US also widened to $85.33/mt January 23, almost $25-$30/mt higher than what prevailing freight rates are, with this week proving quite fortuitous for traders holding such cargo.

“There have been problems shipping cargo from the US to China, because cargo restrictions on vessels have meant that discharging at Dalian is not an option; similarly vessels over 40,000 dwt which sail from the US tend to have drafts that cannot meet the conditions of most Taiwan ports, which leaves Ningbo as the only discharge option. And yet, it’s worth it,” said a Singapore trader.

The recent upswing in prices has also had a marked influence on Saudi Basic Industries Corp.’s sell tender of 20,000 mt of PX loading in February.

The Sabic tender was heard awarded at $955/mt FOB Yanbu to a European trading company, market sources said.

“At that price, and compared to the current spot prices, it’s going to be very, very difficult for that material to head to China, even after co-loading some cargo from India,” said a Singapore trader.

“Prevailing freight rates for the period from the Middle East to East China are around $62/mt, so the offtaker needs a CFR price of around $1,015/mt for the trade to work,” he added.

As for whether PX prices can cross the $1,000/mt mark, most in the market view it as unlikely, although in the words of a Chinese trader, “the market previously considered a PX-naphtha spread of $380-$400/mt to be firmly a thing of the past, and yet, here we are with exactly that situation.”

–Rohan Menon, rohan.menon@spglobal.com

–Sue Koh, sue.koh@spglobal.com

–Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com

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