What happened to the PX market?

In the past two days, although the price of crude oil has fallen sharply, PX has strengthened significantly, showing a large divergence. What happened to the PX market ?

Some market players believe that it is due to the increase in the demand for offshore arbitrage. As can be seen from the chart below, the price spread between FOB South Korea PX and the FOB USG has continued to widen since he beginning of 2022, which has expanded to $100/mt in late-March. Since last Friday, the price spread has further expanded to more than $200/mt. According to the statistics, the current freight rate between the two regions is around $100/mt. Therefore, from this point of view, there is indeed ample room for arbitrage.

There is a strong demand for refined oil products in the United States, MX and toluene are used as common raw materials for gasoline blending and PX production, and the current PX prices in the United States is lower than that of MX and toluene (on May 10, MX price was at $1,477/mt, toluene at $1,457/mt, and PX at $1,405/mt FOB US Gulf). Therefore, in the case of losses, local PX producers choose to reduce PX production and increase the production of gasoline blending,  and then purchases PX from abroad.

From the point of view of the growing demand from gasoline blending and arbitrage profit, the price spread between MX and toluene in Asia and the United States is also very large. On May 10,  MX prices in Asia was at $1,131/mt FOB South Korea and only $1,041/mt CFR China , while the FOB US Gulf price was $1,477/mt. Regardless of the fact that the CFR China price is distorted due to the sluggish China domestic demand, only the price spread between FOB South Korea and FOB US Gulf was at $346/mt. The price spread between toluene FOB South Korea and FOB US Gulf was as high as $402/mt, and its arbitrage space was even larger than that of PX. However, the price increase in MX and toluene which can be used in gasoline blending directly was not as large as that of PX and benzene on May 11.

As for the demand in US, the PTA capacity is near 3.3 million tons/year and the PX capacity is near 3.7 million tons/year, with supply exceeding demand. In longer time span, US is a net PX exporter but the export volume is gradually declining. In Feb 2022, PX imports were higher than exports, incarnating changing supply/demand pattern. From the angle of overall demand, monthly PX demand in US is as high as around 180kt. According to the market sources, 40-50kt of PX was purchased from Asia recently which is equal to around one third of its monthly demand.

PX enjoys strong support in terms of supply and demand in Asia. The operating rate of PX plants in Asia apparently drops on the year in 2022 due to low spread for two consecutive years, and the turnaround season and accidents. PX plant operating rate declines 6% year on year in Jananury-April. 

PX market is expected to see a balance or tight balance in the following months as some units in Chinese mainland, Taiwan of China, South Korea and Japan will have turnaround in May and June despite of the restart of some units. Moreover, the operating rate of PTA plants is estimated to increase also later.

This Friday will be the deadline for the port declaration of June cargoes, not ruling out some PX traders to purchase on a need-to-basis. In addition, the launch of PX units is apparently delayed in China this year and the production rises slowly. Some PTA plants have low proportion of contractual PX this year and need to purchase spot goods periodically. PX suppliers enjoy more discursive power to market quotations this year. As supply is tight and the market fundamentals are sound, it is not strange to see spiking price if some speculative topics emerge.