Tight supply, wide PX-naphtha spread lead to first PX ACP settlement since March 2021

The surprise Asia Contract Price settlement for paraxylene for April was primarily due to limited Asian PX supply and a wide PX-naphtha spread, and may be a one-off settlement, market sources told S&P Global Commodity Insights on April 3.

The PX ACP for April reached a major settlement at $1,085/mt CFR Asia on March 31, the first settlement since March 2021, S&P Global reported on March 31.

"The market is tight and short. The end-user needs cargo," a trader in Singapore said on what lead to the settlement.

Chinese purified terephthalic acid maker Shenghong independently settled with PX producer ExxonMobil at $1,085/mt CFR Asia while Taiwan's OPTC also settled at the same price with South Korea's SK Geo Centric and ExxonMobil, resulting in a major settlement, market players and some participants in the negotiations said.

For a major ACP settlement, at least two PX producers must settle with a minimum of two PTA producers at the same price.

Chinese PTA producer Yi Sheng Da Hua was also heard to have settled with Japan's ENEOS at $1,085/mt CFR Asia, though a company source stated that it was a contract price or CP and not an ACP settlement.

The previous settlement for ACP was seen in March 2021 at $870/mt CFR Asia following a settlement for February 2021 at $705/mt CFR Asia.

Most market participants were surprised with the ACP settlement, which has failed to materialize over the past two years after Chinese buyers continued to shy away.

"Quite surprised actually after more than a year [of] no settlement," a trader in Southeast Asia said.

PX prices have rallied over the past weeks amid a supply crunch spurred by turnarounds in Asia despite lackluster Chinese downstream demand cues, traders said.

"The two sides (China buyers and Japanese, South Korean sellers) are less divided on the PX balance," a trader in China said referring to the current demand-supply fundamentals.

In March, the CFR Taiwan/China PX marker averaged $1,057.19/mt, up from the February average of $1,031.32/mt, data from Platts, part of S&P Global Commodity Insights, showed.

PX-naphtha spread widens

A widening PX-naphtha spread might also have prompted buyers to consider an ACP settlement, traders said.

"The PX-naphtha spread is wide nowadays, so suppliers have negotiation room compared with the current market price. ACP settlement was inevitable," a trader in Japan said.

The PX-naphtha spread surged as PX prices rose while naphtha prices tanked amid excess supplies, S&P Global data showed.

At the Asia close March 31, Platts assessed the PX-naphtha spread at $455.88/mt, up $150.71/mt from March 1, according to S&P Global data.

Current sentiment strong

Current sentiment for aromatics remains healthy due to tight supply and the potential upcoming US summer driving season demand for gasoline blending, a second trader in Singapore said.

However, with most turnarounds part of scheduled maintenance and US refiners more prepared compared to the previous year, the bullishness will eventually ease, the trader said.

"PX, I believe will be more of a summer [driving season] play but unlike last year, people (refiners in the US) are prepared," the second trader in Singapore said.

Despite the ACP settlement for April, market participants don't see it as a recurring affair.

"I think this is a one-off. Once the [current bullish] situation reverses, you will see the conflicts [between buyer and seller] prevail again," the second Singapore-based source said.