Polyester Outlook

Market Intelligence

Polyester Outlook

The spread between paraxylene and naphtha shrank to a record low of $117.445/mt at the Asian close December 14, S&P Global Platts data dating back to April 2005 showed, as PX prices weakened further on a bearish demand outlook while naphtha was supported by rising propane prices. The CFR Taiwan/China PX price was assessed down $12/mt day on day at $832.33/mt at the Asian close December 14, outpacing $1.25/mt dip in the benchmark C+F Japan naphtha cargo assessment over the same period to $714.875/mt, Platts data showed. The spread, which has been narrowing since December 6, had already touched a 14-month low at $128.205/mt December 13 -- a level deemed extremely slim by producers that have been grappling with margin losses for months. The breakeven spread for PX producers using naphtha as feedstock is typically in the range of $220-$250/mt, according to market sources. The slim spread has increased talk of further PX productions cuts, with some producers across Asia already operating at a loss, while others may extend turnarounds until there is a recovery in margins, market sources said. Despite the ongoing maintenance at multiple PX plants, the market remains under pressure from a supply glut resulting from weakening demand and the startup of new capacity. Scheduled maintenance in the downstream purified terephthalic acid sector amid a seasonal lull has also reduced the PX demand outlook for second half December and January, which was being compounded by a recent pandemic resurgence in east China adding to demand concerns due to the impact on logistics in the region. China's PTA plant operating rates stood at around 70% in the week to December 11 due to logistics bottlenecks, and some market sources fear PX demand will weaken further if the issues persist. There might still be some demand in January and February, but market participants were currently on the sidelines amid volatility in crude oil futures and the unclear general outlook. Naphtha stable In contrast, the Asian naphtha market was stable as demand for paraffinic naphtha and relatively more expensive propane prices supported the complex. Strength in the market was seen as the CFR Japan naphtha physical crack spread against front-month ICE Brent crude futures rose $5.85/mt day on day to $153.125/mt at the Asian close December 14, and was up $15.475/mt week on week, Platts data showed. Rising propane prices have firmed demand for naphtha as the more economical feedstock. The physical spread between CFR North Asia propane and CFR Japan naphtha widened $42/mt week on week to $35.625/mt at the December 14 Asian close, Platts data showed. Naphtha blendstock demand was expected to firm further as the reforming spread -- or difference between Singapore 92 RON gasoline and the Singapore naphtha derivative -- widened 60 cents/b week on week to $8.65/b at the Asian close December 14, Platts data showed. The wide spread makes it economically viable for gasoline producers to use naphtha as a blendstock. Key market indicators for Dec 27-31 Naphtha The physical C+F Japan naphtha marker rose $17.25/mt from the previous Asian session to be pegged at $739.25/mt in mid-morning trade December 28 on gains in the crude complex. Weaker market sentiment, as reflected in the naphtha swaps, was in line with muted holiday trade activity. Brokers pegged front-month January-February Mean of Platts Japan naphtha swap time spread at $10/mt mid-morning December 28, down 25 cents/mt from the previous close, Platts data showed. Demand for naphtha as a steam cracker feedstock is expected to take a hit as the key CFR Northeast Asia ethylene and C+F Japan naphtha spread narrowed $5/mt day on day to $308/mt at the Asian close December 24, Platts data showed. This was below the typical breakeven level for non-integrated producers of $350/mt and could prompt some steam crackers to reduce run rates, sources said. The January East-West spread, the premium that CFR Japan naphtha cargo swap commands over the CIF NWE equivalent, was pegged by brokers at $9/mt, unchanged from the European close on December 24, Platts data showed. The East-West spread had narrowed last week due to delays in Europe, as it previously ranged between $14-$15.75/mt earlier in December. Delays in Western arbitrage cargoes would typically boost Asian naphtha, however, the market was reportedly well supplied, with several offers heard for tenders last week. The outlook for most Asian petrochemicals is likely to be bearish due to an anticipated lull in trading due to the year-end. Zhejiang Covid-19 outbreak hits east China petrochemical logistics Tightening restrictions at factories and ports in Zhejiang following a fresh Covid-19 outbreak are causing delays in transportation of petrochemicals in China’s eastern province.From 5 December to 13 December, confirmed coronavirus infections at the cities of Ningbo, Shaoxing and Hangzhou stood at 213, according to the local health administration. The district of Shangyu in Shaoxing has been the hardest hit, accounting for about two thirds of the total recorded infections. To contain the outbreak, Shangyu’s local government ordered on 9 December shutdowns of factories in the district, affecting production of a wide range of products – from medicine to chemicals such as intermediates, polyesters, dyestuff and agents. Road and water transportation to and out of the district were blocked since 11 December. In Ningbo, the Zhenhai port suspended land transportation since 7 December following a lockdown of Zhenhai district, but shipping operations remain normal, industry sources said. For major producer Zhenhai Refining and Chemical Co (ZRCC), deliveries from its Ningbo manufacturing site have slowed down amid renewed restrictions, a company source said, but actual production was not affected. ZRCC has a 23m tonne/year refining capacity and produces 1m tonnes/year of ethylene. Logistics are shot given reluctance among truck drivers to enter affected regions. The transportation backlog, if prolonged, will cause a build-up of inventories among producers, market sources said. Some producers in Zhejiang have lowered operating loads at their plants. Zhejiang Yisheng New Materials has cut the run rate at its 3m tonne/year purified terephthalic acid (PTA) plant in Ningbo to 50%-60% from 90% previously, a company source said. Fund Energy Ningbo’s PP and mono ethylene glycol (MEG) plants are already under planned maintenance since last week. Separately, transportation of acrylate esters is also affected because its drivers and trucks are located in Zhenhai, a source close to Formosa Industries (Ningbo) Co said.