Asian aromatics prices hit new low versus naphtha amid pandemic gloom

Singapore — The average price of Asian aromatics benchmark markets paraxylene, benzene, toluene and isomer-grade mixed xylene on July 9 hit a record low level versus its key feedstock naphtha, at only $47.42/mt, S&P Global Platts data showed, based on data going back to early 2006.

An aromatics trader said aromatics markets were "miserable", and summed up the weakness with one key factor being the COVID-19 pandemic, which continues to dent global demand and production.

A boom in paraxylene production in China over late 2019-2020 has resulted in supply length in the Asian PX market, leading some producers to lower run rates for PX, thereby also reducing demand for feedstock isomer-MX.

The spread between the CFR Taiwan/China PX marker and C+F Japan naphtha physical narrowed $16.625/mt from July 3 to $136.25/mt on July 9, Platts data showed. This put the spread at a fresh all-time low since Platts began assessing the PX CFR Taiwan/China marker on April 4, 2005.

Oversupply and slow demand recovery post-lockdown measures have weighed on sentiments across the polyester chain with a bleak outlook as the market moves into the second half of the year.

With PX-naphtha hitting a record low twice in the week ended July 11, market participants questioned whether there is a limit to how much further can it narrow amid the unprecedented situation.

Market participants anticipate a rebalancing of fundamentals and margins over the next couple of months with sources noting that it would have to be driven by the supply-side as demand looks increasingly tough to return to pre-COVID-19 state in the short-term amid the lack of positivity and confidence.

Depressed aromatics margin could trigger considerations to reduce run rates but there are also other factors when it comes to decisions around run rates, said sources.

MX-naphtha on July 9 hit $33.25/mt, a new record low for the spread, also due to sluggish gasoline demand, based on FOB Korea isomer-MX at $437/mt.

Over in benzene-naphtha, the spread hit a fresh one-year low at $10.92/mt, far below approximate breakeven levels of $150/mt.

The spread was last lower on March 29, 2019, where the spread stood at minus $4/mt, with benzene prices lower than its feedstock naphtha.

Market sources had earlier noted that a repeat of a negative spread was not impossible in the near-term future.

As a result, FOB Korea liquidity this week is notably thinner, with fewer cargoes traded in the spot market, as plants reduce operating rates and shift focus to fulfilling term contract obligations.

The spread between FOB Korea toluene versus CFR Japan naphtha physical crunched to a single digit level at plus $9.25/mt on July 9. The tight profit margins were pressuring toluene suppliers to scramble for outlets within the region as opposed to focusing only on China, although broadly, the Asia had been mired with excess surplus. Blending demand from gasoline market, the key sector for toluene, would most likely encounter further headwinds as China increased export quotas for local refiners.

The Asian naphtha market has seen tight supply from refinery run cuts, yet demand appetite was firm on positive olefin margins, boosting trading sentiment, sources said.

Asian steam crackers were heard running at full or close to full capacity even with negative earnings on aromatics, sources said.

"As long as the [positive olefin] margin is there, I think the crackers have no reason to cut the run rates even if trading level for cargo premiums is above $20/mt for open-specification naphtha," said a naphtha end-user.

"People are still buying because there is no choice, they can still enjoy big margin [overall] for crackers, so all the crackers can just pay up," the source added.

Strength in the Asian naphtha complex had firmed feedstock prices for steam crackers, with the benchmark naphtha C+F Japan cargo assessed at $403.75/mt at July 9's Asian close, up $5.25/mt on the day. In comparison, the June average was $369.01/mt and the month to date average is $396.32/mt, Platts data showed.