China PX imports affected by the influx to the US

China PX supply continues tight recently, not only because domestic production growth is slower than expected, but also because the imports reduce sharply. In Jan-Jul 2022, Chinese mainland imported 6.357 million tons of PX according to China Customs, down 20% from the same period of last year. In Jul this year, the volume of imports hit new monthly low since Dec 2012.

The sharp reduction in China PX imports came as a result of production cuts outside China as well as the influx of cargoes to the US with Asia to US arbitrage earlier open. Then, how will PX trading flow change in the future?

From US standpoint, with aromatics price spiking since this Apr, the arbitrage from Asia to the US opened. US PX imports began increasing in May and the monthly volume even jumped by 120% on year in Jun. The volume is expected to continue rising in Jul, given the trading activity and the cargoes loaded earlier.

In terms of origins for US PX imports, the increase in volumes from Saudi Arabia, South Korea and Kuwait is the most obvious in Q2 compared to the quarter earlier. The imports from those three countries recorded increment of 44kt, 49kt and 25kt in Q2.

However, those three countries came at the twelfth, first and ninth biggest origin for China PX imports in 2021. Therefore, China PX imports get impacted by the materials diverted to the US.

From the standpoint of South Korea, its PX to US only accounted for about 1% in the country’s PX exports before Mar, but the proportion has been increasing since Apr and reached 31% in Jul. Meanwhile, its PX to Chinese mainland and Taiwan both declined. According to the customs data, the proportion of PX exports to the US has dropped sharply, while that to China has increased. During Aug 1-20, South Korea exported 218kt of PX to Chinese mainland, and given the volume in late Aug, exports of PX to Chinese mainland are expected to reach 330kt, up by 70kt from 260kt in Jul.

From the standpoint of Saudi Arabia and Kuwait, the proportions of PX to China in the total exports from the two countries showed a downtrend before May. Saudi Arabia exported PX to China once in two months, unlike the situation in the past year, and Kuwiat’s PX exports to China dropped to zero in Jul. Firstly, the exports to US increased with arbitrage open since May. And secondly, during the negotiation of 2022 term contract conducted in end-2021, Middle East had already cut supplies to China and increased the volume to US, as China’s appetite for imports kept shrinking. In addition, it takes a long period for Middle East shipments to arrive at China while the freight rate is high, hence the low competitiveness.

Under this circumstance, for those two countries, any diverting of PX exports from US to China would be limited, and the increase in China PX imports for this reason may materialize in Sep or even later.

In a conclusion, rise in China PX imports would be dependent on production increase outside China as well as some inflows of cargoes back to China. It shows a gradual increasing trend but still takes time.