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End of PX's golden years as surplus exceed 7 million mt in 2017

By Chua Sok Peng and Jim Foster

May 16, 2013 - Paraxylene, one of the most lucrative petrochemical commodities for the past five years, is expected to lose its shine in the next few years as it becomes victimized by overcapacity in Asia and the Middle East.

The massive PX expansion is tied to energy demand in these regions, which resulted in more refineries being built and in the process, more associated integrated petrochemical facilities.

Analysis continues below...

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Surge in PX capacity

Total Asian PX capacity -- based on announced projects coming on stream from 2013 through 2017 -- is expected to grow by 40% over the next five years, reaching 40 million mt/year, according to Platts data.

PX power houses such as China and South Korea are taking the lead in the expansion drive, with China gaining 3.5 million mt/year or 41% capacity from its current 8.6 million mt/year.

South Korea's PX capacity growth over the same period would be by 5.1 million mt/year or 94% from its current 5.4 million mt/year.

In the Middle East, PX capacity during the same period is expected to surge by 200%, reaching 10.85 million mt/year by 2017, from the current 3.4 million mt/year.

If operating rates follow historic norms in both regions -- 85% in Asia and 80% in the Middle East -- total PX production is expected to climb by 69% during the next five years.

Total production in Asia would climb to 34 million mt/year, while Middle East production would climb to 8.7 million mt/year -- for a combined total PX production of nearly 43 million mt/year. (See related table: Current PX capacity)

PTA demand

PX demand from downstream purified terephthalic acid plants would not keep up with that supply.

PTA capacity in Asia is expected to climb by 46% over the next five years, reaching nearly 67 million mt/year in 2017. Given recent poor production economics, run rates have been reduced to 50% to 60% of capacity.

Even if run rates were to improve to 75% of capacity, the PX surplus in Asia would climb above 4 million mt in 2014, and surpass 8 million mt by 2017, Platts data showed.

The anticipated surplus in 2017 could be cut in half, though, if PTA producers increase operating rates to 85% as production economics improve.

Any move by PX producers to reduce production rates below 80% also would potentially erode the anticipated surplus.

China, the world's largest polyester producer, had been on an expansion drive for the past five years in a bid to reduce reliance on imports.

China's PTA capacity stood at 33 million mt/year in 2012 and another 19 million mt/year is being planned from now through 2015.

With the new PTA capacities, increased PX demand, based on a PX conversion factor of 0.66, would stand at 12.54 million mt by 2015. If PTA plants' run rates stay low at 60%, then new PX demand for China would fall to 7.5 million mt/year. (See related table: PX-PTA spread)

PX-naphtha spread

Asian PX producers typically need a spread of $230/mt against feedstock naphtha to breakeven.

Based on historical data from Platts since 2006, the lowest annual PX-naphtha spread was $340/mt in 2010 with the peak at $625/mt in 2011.

The huge margin was largely due to new PTA capacity expansions in China, which drove up demand for PX feedstock, and in turn pushed up prices.

Looking ahead, with more PX capacities and limited growth in PTA capacities, the PX-PTA balance would tilt in favor of the end-users.

After suffering losses for three years, PTA makers are looking for a break. "We don't expect prices to jump drastically but margins should start to improve for us," said a PTA maker in China.

Meanwhile, a PX producer in China felt that the PX surplus scenario was too pessimistic. "A PX expansion will face the same feedstock limitation as a PTA expansion," he said.

"Without sufficient naphtha, mixed xylene or toluene, the new PX plants in South Korea and won't be able to run at full capacity.

Plants in China and Middle East are integrated so they actually stand a better chance of full operation."

He added: "The PX party is over but we won't expect to be in the red. If there is too much PX, we can always use it for gasoline blending." (See related table: PX-naphtha spread)

Next chart:
Asian and Middle East PX Supply/Demand Balances

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