Platts Petrochemicals - Asian aromatics update 2013 chua sok peng

CHUA Sok Peng,

Managing Editor, Asia Petrochemicals | Feb 2013

Asian Aromatics 2013

• Benzene: Late spike in 2012, correction in Q1 2013

• Styrene: Are current prices sustainable?

• Paraxylene: Surging despite downstream struggles

• Isomer-MX: Mixed signals

• Toluene: Still a gamble

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Agenda

Asian Benzene-Naphtha spread

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US demand drives BZ price in Asia, Europe

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Benzene spiked in late 2012: China factor

New/Expansion of downstream capacities in China• H2 2012 - Bullish caprolactam and phenol markets in 2010/11 resulted

in a boom

• Supported by expanding nylon capacities

• Increase in demand of benzene/cyclohexane in China

• Increase in Chinese demand of benzene was unexpected

• Chinese imports of benzene increase from 12,000 mt in Aug to 40,000 mt in Sep and 76,000-78,000 mt in Oct/Nov and 64,000 mt in Dec

Now, China was expected to import more benzene in 2013. But buying appetite curbed by huge price gap of more than $70/mt between domestic and imported cargoes. Industry expects Chinese imports for benzene to stabilize at around 30,000 mt/month

Sinopec domestic benzene price stabilized at Yuan 10,600/mt ($1,415/mt) for the past few months. Chinese buyers will only buy if FOB K is not more than $1,400/mt or around $1,430/mt CFR China.

Benzene spiked late 2012: China factor

Low inventories of SM and benzene in China

• Styrene surge in Dec supported benzene market

• Long styrene Chinese traders like Caphill/Kyetong are supporting the SM market.

Aggressive short covering by traders

• Market structure flip into backwardation in June, market participants did not expect it to last so long

• Cargoes rolled over as traders expected prices of benzene to increase later but that did not materialize.

• Chinese traders continued to support the prompt prices as they sought to cover short aggressively. Buy prompt at high.

• Now, short traders have covered their positions by Dec at high prices. No support now from traders for short covering.

• Middle East typically supply benzene to US, but due to spate of turnarounds at styrene plants there, cargoes are making their way to Asia instead.

• Between January and March, around 30,000-50,000 mt of Middle East benzene moving to Asia as US prices falls on high inventory level.

• Most of the Middle East cargoes sold to China.

• China import just 8,800 mt of benzene from South Korea in Jan 2013, compared with 32,000 mt in Dec 2012.

Reverse trade flow: ME BZ heads to Asia

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Agenda

Styrene at record high on Jan 7, 2013

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China domestic price contributes to surge

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� Price gap between imported and domestically produced styrene monomer in China hit 11-month-high on Feb 18, dampening demand for imports and potentially restrict buoyant global SM prices.

� Spread between the two prices hit $67.70/mt on Monday -- the highest since March 29, 2012, when it was at $79.1/mt.

� The wide gap could potentially reduce demand for spot cargoes on a CFR China basis as it would be cheaper to buy from the domestic market.

� East China inventory level reached a low of 35,900 mt in the last week of September 2012, when the domestic price of SM was almost $130/mt above the CFR China price. The reverse price spread widened to as much as $259/mt on October 29, 2012. The CFR China price rose to become higher than the domestic price again only in late December 2012.

Fall in China domestic price caps imports

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East China SM inventory, domestic price

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Agenda

PX continues to rise on strong demand

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PX surge shows little regard for PTA

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PX ACP no longer a safe haven for PTA

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New PX capacities in Asia/Middle East

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NEW PX CAPACITIES IN ASIA/Middle East

Dragon Aromatics Fujian 800 Jan-Mar

HC Petrochem Daesan 800 Jan-13

Fujia Dahua Dalian 750 SU in 2012?

PetroChina Sichuan 650 SU late 2012

Ulsan Aromatics Ulsan 1,000 May-14

Shell/Taiyo/GS Caltex Yeosu 1,000 end-2014

SK Innovation Incheon 1,300 late 2014

Samsung Total Daesan 1,600 Sep-14

SATORP Jubail 700 H2 2013

ONGC Mangalore Mangalore 920 2013 Apr

Jurong Aromatics Singapore 800 2014 June

Zhejiang Hengyi Brunei 1,500 2015

New PTA capacities in China

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NEW PTA PLANT CAPACITIES IN CHINA

COMPANY LOCATIONCAPACITY (KT/YEAR) STARTUP

BP Zhuhai Zhuhai 200 Feb

Hengli Dalian 2,200 Sep-Oct

Hengli Dalian 2,200 Early 2013

Tongkun Zhejiang 1,500 Aug

Zhejiang Yisheng Hainan 1,800 Nov-Dec

Yisheng Dalian 1,500 Nov-Dec

Xianglu Xiamen 1,500 Q1 2013

Total 10,900

0

1000

2000

3000

4000

5000

6000

7000

2008 2009 2010 2011 2012

PX

PTA

China PX, PTA imports

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Trend in 2013

• PX price moved up sharply 2012 on tight supplies after PTA plant start ups. This trend will likely end in 2013 due to startups of new PX plants (HC Petrochem, Dragon Aromatics). Price decline to likely start from mid-2013.

• In addition, PTA plant runs lowered amid negative margins, creating excess PX supplies in the market.

• The CFR China PTA price is relatively stable currently because of lower plant runs. But in 2013, PTA price will plunge following a series of startups of new PTA plants in 2012. Domestic PTA and imported PTA price gap widens to $60/mt in 2013, compared to $30/mt in 2012.

• Textile sales remain bearish in China. Cotton prices artificially high. Huge clothing inventory: Even if all of China’s clothing industry comes to a halt for 1 year, there’ll still be enough clothes to house every Chinese for 3 years – China National Garment Association






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Agenda

Isomer-MX-Naphtha spread grows

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Isomer-MX: US arb closed since Q4 2012

PX-MX spread widening

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• Expectation: MX to be tight in 2013 due to start up of HC Petrochem’s PX plant in South Korea and TenglongAromatics in China.

• Reality: HC Petrochem operating at just 70%, Tenglongstill not started up due to feedstock, environmental issues

• Expectation: Closure of US-Asia arbitrage will spur demand

• Reality: Asian demand weakens. Taiwan not buying MX as PX demand is weak due to poor PTA

Isomer-MX: Mixed signals

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• Asia structurally short of MXAround 800,000 mt to 1 million mt/year of MX supplied by the US

• ‘Shale gas boom’ in the US worsens Asian MX marketUS/Asia isomer-MX arbitrage has shut since Nov 20 2012 until now due to rising US MX prices

• Rising term contract prices – up $4-10/mt premiumFOB Korea: GS Caltex offer at $10/mt premium in 2013, compared to $5-6/mt in 2012SK Global Chemical offer at $6-9/mt premium

CFR Taiwan: Formosa buys at about discount $3-4/mt (2013), discount $24-28/mt (2012)

Outlook: Isomer-MX Supply to remain tight

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Asia capacity

75% 2,400,000 mt/year

US/Asia MX25%

800,000 mt/year

<Asia isomer-MX market size>






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Agenda

Toluene: Price correction after end 2012 surge

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China replenishing toluene

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Benzene-toluene spread encourages TDP

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• SEA already tighter in 2013 because of lesser Thai PX supply

• Exports to India may increase due to tax change, making SEA-origin volumes more competitive to South Korea (on top of freight advantage) in Asia.

• Europe, which can also deliver volumes to India (and did so in December), will also have to compete with this tax advantage.

Example:If FOB Korea and FOB SEA price is $1,300/mt,

2-3kt freight S. Korea to India: $72-78/mt (PC641 Jan 8 2013)

3kt freight SEA to India: $45-53/mt (PC642 Jan 8 2013)

CFR India (Korea-origin): 1,372*1.025= 1,406.30/mtCFR India (SEA-origin) $1,345*1.000= 1,345/mt

Southeast Asia and India toluene in 2013

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India import tax 2012 2013

ASEAN (excl. Philippines) 2.00% 0.00%

South Korea 3.13% 2.50%

Thank You!CHUA Sok Peng

Managing Editor, Asian Petrochemicals

Platts Petrochemicals - Asian aromatics update 2013 chua sok peng

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