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Asia: Poor downstream demand, surging feed costs restrict Asian OX makers

https://www.chemnet.com   May 05,2011 Platts
Asian orthoxylene producers are unable to pass on their high isomer-grade mixed xylenes feedstock cost to their downstream phthalic anhydride markets due to weak demand for PA, said traders Wednesday.

This has led to the Asian OX price to be capped at $1,356/mt, reached April 21, Platts data showed.

The Asia OX/isomer-MX spread flipped into negative territory Tuesday, at minus $4.50/mt, while the price spread between PA-OX closed last week at minus $64/mt, rebounding slightly by $2/mt from the week before, Platts data showed.

Producers and traders have been complaining of an acute shortage of PA demand in China. Consistent steps taken by the Chinese government to control inflation in the country and a resulting lack of demand were the prime reasons for the fall in the PA price, Platts reported earlier.

PA was assessed at $1,280/mt CFR Far East Asia last Thursday, and OX at $1,344/mt CFR China Friday, with the PA-OX spread deeply entrenched in the negative region on weak PA demand and high feedstock OX costs.

The PA-OX spread was at an all time low of minus $66/mt on April 21, when OX and PA prices were at $1,356/mt CFR China and $1,290/mt CFR FEA, respectively.

OX CFR China prices jumped 16.6% from December 10, 2010 -- when PA margins first flipped into negative -- to $1,344/mt CFR China last Friday. PA prices increased over the same period, but at a slower rate of 8.9% to $1,280/mt CFR China last Thursday.

PA producers in China have been facing negative margins since December. Based on CFR China prices, the margins reached a trough of minus $98.20/mt on April 21, before rebounding by $1.40/mt to settle at minus $96.8/mt last Friday. The last time that margins were profitable for PA producers was on December 2, 2010, when it stood at a marginal $1.75/mt.

The production margin for PA is calculated based on the difference between the price of PA and the total cost of PA production, which is taken to be 95% of the price of OX, in addition to an estimated production cost of $100/mt.

OX-MX SPREAD IN NEGATIVE TERRITORY

Similarly, Asia OX/isomer-MX spread flipped into negative Tuesday at minus $4.50/mt, after isomer-MX rebounded by $13/mt from last Friday to $1,323.50/mt FOB Korea and $1,343.50/mt CFR Taiwan Tuesday.

The spread was last seen in negative territory on April 21 at minus $1.50/mt.

OX was assessed at $1,280/mt CFR China last Friday, a $12/mt or 0.8% increment week on week, while feedstock isomer-MX was at $1,323.50/mt FOB Korea Tuesday, up $13/mt or 0.9% from last Friday.

OX producers typically require the product/feedstock spread to be at $100-150/mt to break even.

The OX-MX spread reached a peak of $222/mt on February 14, holding above $150/mt from the beginning of the year until the March 11 earthquake in Japan. The spread was at $156.50/mt on March 11, however, it has been narrowing since then before flipping into negative territory for the first time on April 4 at minus $25.50/mt.

Since April 4, the OX-MX spread has been alternating above and below the zero level line before settling in the negative Tuesday.

Market players were in consensus that the OX market is in an "awkward" situation as it was sandwiched between high feedstock isomer-MX and poor downstream PA markets in recent weeks.

"[A] very difficult situation, even if OX producers try to control [production] rate, the increase [in OX prices] will be limited due to the PA market," said a South Korean trader.

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