By Kevin Allen, Regina Sher, Alexander Borulev, Samar Niazi
Global paraxylene supply tightness took the market by surprise in the first half of 2021, spurred by multiple coincidental plant outages in Asia. In the wake of lower global PX operating rates, a tight-to-balanced picture is expected in the second half of this year, though supply additions could add some pressure.
As supply comes back online from unplanned shutdowns, supply tightness is expected to ease in the next half of the year. Scheduled maintenances in Asia were largely concentrated in H1 2021, said sources, and that supply is expected to resume in H2 2021.
Europe is mirroring Asia, with European producers expected to increase production rates to meet bullish demand expectations, though the primary focus will be on supplying for terms contracts. In North America, demand is poised to increase during the second half of the year due to ongoing vaccination efforts across the US, coupled with stronger seasonal demand, sources said.
In Asia, several end-users have not been fully covered by term contracts in 2021, so firm spot demand is expected to continue, assuming downstream PTA run rates remain stable.
However, many Chinese PTA plants have been undergoing maintenance and slashing monthly PTA term supply amid poor PTA margins, which has heightened demand concerns for PX and may cap further price rises. In H2, uncertainty around Chinese PTA run rates threatens the sustainability of PX prices and spot demand, sources said.
In contrast, European PTA rates are expected to improve as Ineos lifts its force majeure declaration at Geel, bolstering PX demand in a region that has burned off large inventories seen throughout much of H1.
In North America, PX demand is expected to improve as a PTA force majeure declaration heard during the first half of the year by a US East Coast producer is expected to be lifted.
On the supply side, the startup of China’s Zhejiang Petrochemical Phase 2’s PX units is expected to lengthen the market and dampen the sentiment despite new downstream PTA plants starting in the same period.
Zhejiang Petrochemical Phase 2's 2.5 million mt/year PX No. 1 line is expected to start up in June, while the other 2.5 million mt/year PX No. 2 line is slated to start in late Q3. The market also awaits the startup of Aramco Jazan’s 850,000 mt/year PX plant in the second half of the year.
Capacity additions are not expected in Europe or the US and these regions are likely to see supply supported by continued imports.
The added supply will weigh on prices globally and particularly in Asia. A producer said that while the PX-naphtha spread has outperformed this year compared to 2020, non-integrated MX-based PX plants may possibly cut production amid thinning margins, thus tightening supply.
The PX-MX spread averaged near $77/mt in the first half of 2021, as compared to near $87/mt in H2 last year, S&P Global Platts data showed.
Asian market participants said that the first half of 2021 has set a positive tone for PX, amid expectations of rangebound production margins, although Q1 prices may represent the bright side of the year.
In the US, output from selective toluene disproportionation units is expected to dip as toluene prices improve in line with stronger seasonal demand from the blending segment and as the benzene market becomes more balanced.
Crystallization unit operators could see some compressed margins during the summer driving season as demand for reformate and aromatic blendstocks improves.
A few Asian sources were optimistic that healthy downstream polyester margins could keep the PX momentum going, but others were less hopeful due to the resurgence of COVID-19 cases globally, which has dampened the optimism around demand recovery.
The market was too pessimistic in 2020 and too optimistic in the first half of 2021; price increases across commodities are driven by expectations and sentiments of demand recovery, but we have yet to see real demand in the polyester chain picking up, said an Asian PX buyer.
In Europe, the market will likely continue to follow Asia and seek further guidance from PTA and PET markets. “The PX market will be driven by the PTA returning capacities,” a producer said. Peak PX demand this year is likely between July-September, because of PTA demand picking up on the back of more PET production, according to a trader.
Like Europe, the US paraxylene market will continue taking its cues from Asian markets. Sources have said they do not expect premiums to the CFR China marker to improve significantly during the latter half of the year.
The US market will continue to be driven by seasonal PET demand and general economic health. GDP growth in the US is expected to be strong in 2021, though unfavorable jobs numbers and inflationary pressures seen in April, if persistent, could stifle growth, sources said.
Looking ahead, crude oil prices, the efficacy of COVID-19 vaccination, and PTA operating rates amid depressed margins will be key to paraxylene’s performance in H2 across the globe.
