Mixed xylenes under strains from weak demand and ample supply

Toluene and mixed xylenes prices declined in Shandong in end-Apr as stocking demand prior to Labors' Day holiday did not live up to expectation and refineries lowered prices to outlet products. During the holiday in the beginning of May, despite the decline in crude oil, toluene and MX price rose in Shandong, on the back of good demand from chemicals and gasoline blending. Inventories reduced obviously, and supply was tight with several plants under maintenance.

After the holiday, however, gasoline blending demand ebbed and sales of refined oil products as well as blending components slowed down. As a result, refineries lowered toluene and MX prices again.

Spread = FOB USG price - FOB Korea price - $150mt

US had earlier imported a large amount of toluene and MX from South Korea and the inventory has increased. Then, the arbitrage spread has narrowed to around break even line. With FOB Korea toluene price falling, discussion for exports from China muted.

PX-MX margin = CFR China PX (converted to yuan price) - MX - $90/mt*exchange rate

TDP margin = Benzene + MX - 2*toluene - 800yuan/mt

China benzene price remained resilient amid strong fundamentals. TDP margin has maintained good since Mar. However, PX-MX margin has been squeezing since Mar and it declined in particular in mid and late Apr. Due to the worsening economics of PX based on MX, some plants such as Fujia Dahua, Fuhaichuang and Shenghong have cut PX operating rates.

On May 10 afternoon, news that CNOOC Daxie would unexpectedly shut its 1.6 mln mt/yr PX plant for 1 month hit the market. As a result, East China MX price declined by 140yuan/mt on May 10, amid the expectation that MX supply to the market would increase. However, on May 13, CNOOC Daxie cancelled PX plant maintenance, and MX price rebounded in tandem.

Meanwhile, some earlier-shut plants are expected to gradually restart. CNPC Dalian's plant was shut on Mar 25 for maintenance till May 13, Sinopec Zhongle's plant was shut on Mar 20 and poised to restart on May 20. In addition, CNPC Jinzhou has started its new 1 mln mt/yr reformer with MX selling volume estimated at about 20,000 tons per month.

In a conclusion, with ample supply coupled with weak gasoline blending demand, MX price may stay weak.