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Tight supply pushes Asia isomer-mixed xylene price to record high

By Chua Sok Peng and Joycelyn Chua in Singapore

March 14, 2012 - Asian isomer-grade mixed xylenes first rose to a historical high on February 24 and continued to surge to another record high on March 5, closing at $1,416/mt FOB Korea and $1,426/mt CFR Taiwan. (See related chart: Isomer-MX hits record high March 9, 2012)

Similarly, the average price of Asian isomer-MX surged 7% or $90.90/mt in February from January to $1,382.19/mt CFR Taiwan while Asian paraxylene spot price in February rose 3.6% from January and averaged at $1,641.76/mt CFR Taiwan/China, according to Platts data.

On the surface, the surge appears to be led by downstream paraxylene, which ended the week $39 higher at $1,664.50/mt CFR Taiwan/China.

But a closer look at the MX-PX dynamics reveals that the mixed xylenes could well become the most sought after commodity in the region as more PX plants start up over the next two years. (Listen to podcast: Why are Asian isomer-grade MX markets climbing to record highs?)

Market commentary continues below...

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Asian PX has received significant market attention this year as more than 10 million mt/year of downstream purified terephthalic acid capacity is expected to start up.

But isomer-MX, which can be used to make PX, was quietly gaining strength since last year, fueled by production disruption and changes in trade patterns.

Supply disruptions

Asia is structurally short of MX and typically imports 500,000 mt or one-third of its annual requirement from the US.

Japan, one of the key MX suppliers in Asia, was unable to maintain its supply after production was disrupted by a massive earthquake on March 11, 2011.

CM Aroma had to shut its 270,000 mt/year MX plant in Chiba and JX Nippon Oil & Energy had to shut its 470,000 mt/year MX plant in Sendai.

The JX plant is expected to restart at the end of Q1, but latest news indicated that this may not happen as JX was reportedly seeking MX cargoes, around 5,000-10,000 mt for March.

JX shut a reformer in Mizushima, western Japan, end-February due to mechanical problems.

It is unclear when the reformer will be restarted, but the shutdown has reduced aromatics output at Mizushima, market sources said.

A trader said JX's move might be an indication that it may not be able to ease the current tight isomer-MX supply in Asia by the end of the first quarter, which the market had been expecting.

"With JX buying March cargoes, the balance is tight. Moreover, with the gasoline season starting in April, it is most likely that MX supply from JX will resume only after H2 2012," a market watcher said. This is due to the gasoline season starting in April and usually last till June or July.

With the peak season approaching, JX is most likely to be retaining isomer-MX in its gasoline pool than to extract it for spot sales. Thus, it is most likely that MX supply from JX will resume only after H2 2012.

South Korea, another traditional MX supplier to the region, has also reduced its output.

GS Caltex, which is able to produce 1.6 million mt/year of MX, has reduced its supply after revamping its PX production at Yeosu last October.

GS Caltex increased its PX output by 100,000 mt/year in October and in the process reduced its available isomer-MX by around 100,000 mt/year.

Market sources said that despite GS Caltex's huge MX capacity, it effectively only has around 200,000 mt/year of spot cargoes available.

SK Global Chemical, which has 1.4 million mt/year of MX production capacity, used to be one of the most active traders in Asia.

But it has significantly reduced its trading activities since mid-2011 to concentrate on its role as a producer, resulting in less liquidity for the mixed xylenes.

In the US, isomer-MX supply was significantly reduced after US-based Hess and Venezuela's PDVSA said mid-January that their 350,000 b/d Hovensa refinery at St. Croix would be shut in February due to poor margins.

The Hovensa refinery was able to produce 4,000 b/d isomer-MX (187,200 mt/year).

Industry sources said that it is still too early to gauge the full impact of the shutdown of the Hovensa refinery.

In addition, the cut in isomer-MX supply has caused prices in the US to rally, thus shutting the arbitrage between the two regions.

US MX prices have surged 47 cents/gal ($1742.88/mt) or 12.2% since January 3, closing at 482 cents/gal ($1,313.28/mt) FOB Gulf on March 9.

For now, Philippines' Petron Corp. and India's Mangalore Refinery & Petrochemicals Ltd. are regular MX suppliers, offering between 10,000 mt/month and 16,000 mt/month of spot cargoes.

But MRPL is currently building its own 920,000 mt/year PX plant which is expected to start up in Q1 2013, and its MX will be diverted to the new PX plant.

Next page: Mixed xylene demand to surge in tandem with new PX capacities

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