Next year, the global paraxylene (PX) market will remain focused on Asia, especially China, market participants said. While the additional downstream production capacity in Asia will temporarily absorb the excess SUPPLY of PX, there will also be a large amount of new production capacity in the region, which, coupled with uncertainties in the global economic recovery from the COVID-19 outbreak, will continue to result in an oversupply of PX in the market. Analysts are not optimistic about the PX market in 2021, as the economic recovery from the pandemic is a major factor affecting spot prices and market fundamentals.
Asian markets will remain oversupplied
Market participants expect the Asian PX market to remain oversupplied until the first half of 2021. This is bad news for PX producers, who have already had a particularly tough 2020. Nonetheless, market participants expect the fundamentals of the PX market in 2021, particularly in the first quarter, to improve as supply and demand tighten due to new refined terephalic acid (PTA) capacity.
Production margins have been below break-even levels for a long time, leading to a decline in the availability of PX plants in Asia and a rebalancing of supply and demand. However, market participants said that despite the poor economic environment, there were limits to the decline in PX plant operation due to the demand for gasoline blending and the need for refineries to ensure an internal supply of hydrogen for desulphurizing upstream products. A South Asian market participant said the reduction in supply may not be enough to effectively reduce the current oversupply in the market. One trader said a bigger drop in PX production would only be caused by a big change in the petrol market, or by lower polyolefin margins and lower overall refinery utilisation rates.
New demand for PX from China's newly built PTA capacity will also help absorb the excess supply of PX in the first quarter of 2021. This includes the PTA capacity of 2.5 million tons/year of Fujian Baihong Petrochemical, 2.4 million tons/year of Jiangsu Shenghong Petrochemical and 3 million tons/year of Ningbo Yisheng Petrochemical. These new Ptas generate about 5.25 million tons of PX demand per year, according to standard & Poor's Global Platts Energy.
However, all eyes in the PX market are focused on the second phase of Zhejiang Petrochemical Project. The project will increase the supply of PX by 5 million tons/year between the end of the first quarter and the beginning of the second quarter of 2021, putting pressure on the PX market that is trying to rebalance and keeping supply and demand relatively unchanged from 2020. In addition, Aramco's 850,000 ton/year PX plant in Gizan, Saudi Arabia, which will start production in the second to third quarter of 2021, will also bring additional supply to the market. An Asian PX producer said the good start to 2021 due to increased demand was likely to be short-lived, and the pressure of oversupply in the PX market could resurface once the second phase of Zhejiang Petrochemical project starts production.
Demand is weak in Europe
Market participants usually stockpile PX products in winter and spring for peak summer demand, but the COVID-19 outbreak could make a difference in 2021, a European trader said. Many market participants expect Europe's only export market for PX goods to be the US. The situation may not change in early 2021, as demand in Europe will be weak and PX will be oversupplied.
Some market participants argue that PX producers outside China should focus on rationalizing production to rebalance the market. A long-term recovery in PX production margins could be difficult, as there is enough capacity to raise operating rates or restart production if production margins rebound.
Factors such as the introduction of COVID-19 vaccines and the pace of recovery of the terminal industry after the pandemic have added to the uncertainty of market demand. Meanwhile, in Europe, where market participants are busy dealing with excess inventories, the impact of China's new PTA capacity is expected to be minimal.
The US market is under pressure
In 2019-2021, the growth of PX production capacity in Asia has affected the price of PX in global markets, including North America. PX producers in the US struggled through the third quarter as planned and unplanned shutdowns of mixed xylene (MX) plants along the US Gulf coast led to a strong increase in the price of MX, the main ingredient, which negatively impacted the economics of PX production. The average us spot spread between PX and MX was just over $56 a tonne in the third quarter, below the break-even point.
In addition, market participants say that PX production from toluene converters will be minimal in 2020 because selective toluene disproportionation (STDP) profit margins are often negative and economic conditions are unlikely to improve in 2021. U.S. PX producers are likely to continue to compete with low-cost imports from the U.S. Atlantic coast. U.S. imports of PX jumped 45% from 2019 to the middle of the fourth quarter of 2020.
In the second quarter, the cost of PX imports on the U.S. East Coast was lower than the cost of PX production on the U.S. Gulf Coast, sources said. U.S. PX prices may ease in 2021 as plants in other regions reduce operating rates or stop production, but the outlook remains bleak.
