Tecnon OrbiChem
Analysis: paraxylene values in Asia & Europe 2015 – 2022 (US$/ton) (Source: Tecnon OrbiChem)
The polyester market is one of many still reeling from the Russo-Ukraine war and its impact on energy price. Reduced export of Russian oil and refined products is disrupting gasoline markets, which remain tight in Europe and the USA. The new white paper from Tecnon OrbiChem explores how gasoline market disruptions are impacting the polyester chain.
Disruptions in the gasoline market, which impacted paraxylene (PX) and thus PTA/PET cost and prices in recent months, have not completely disappeared. High mixed xylene values have again influenced PX negotiations in October leading to high disparity with Asia and high PX prices, which are moving in the opposite direction to what the current dynamics in the polyester (PET) market would suggest.
The gasoline market remains extremely complex and having an unusual impact on chemical industries. European mixed xylenes supply was short and prices climbed in the second quarter (Q2) of 2022. Higher energy values and strong demand into gasoline as well as a shortage of gasoline blending components supported prices. Impact of imbalanced refining business, and higher gasoline-naphtha spreads, led blenders and refiners to use much more naphtha in the gasoline pool. However, the use of naphtha means blenders need higher octane, low RVP components (toluene and mixed xylenes) to meet gasoline specifications. Octane is tight, meaning that there are big premiums for gasoline blend components. The polyester industry is unable to afford the premiums that mixed xylenes producers get from blenders.
The position/strategy and profitability has been completely different for companies producing PX (buying mixed xylenes) or buying PX. Paraxylene production has been discouraged by high mixed xylenes values with 2 completely different markets (gasoline and PET) making use of the same molecule. Paraxylene buyers claimed the need to have parity with Asia to avoid high disparities and higher PET imports, which have reduced PET operating rates, thus affecting polyterephthalic acid (PTA) and PX demand.
The high PX values in recent months, but also the delays in settlements and therefore the uncertainty associated to the cost of PTA/PET remains one of the challenges for PET producers in the USA and Europe at a time that competitive imports and softening demand are reducing PET operating rates. Existing well-stabilized import channels and a decline or collapse of freight rates have contributed to higher imports. 
Dutch TTF natural gas prices, a representative reference for energy prices in the European petrochemical industry, were stable below € 90/MWh during the first half of June, increased to levels between € 150 and € 175/MWh in July, peaked at € 346/MWh at the end of August and are around € 125/MWh in October 2022. Although the TTF values at the end of 2021 were at € 50/MWh, the average levels for the year were around € 25/MWh.
Negotiations for 2023 contractual PET deliveries are being delayed until there is some clarity on the main cost (raw materials, energy). The uncertainty associated to TTF has encouraged/ forced producers of raw materials to propose minimum deltas/ adders and adjustments depending on the evolution of energy/TTF.
It is clear that the scenario has completely changed compared to Q2/2021 when contracts for 2022 where negotiated. All products in the chain were able at that time to pass a higher cost and improve margins amid high operating rates and limited alternative options including imports.
The European September and October 2022 paraxylene contract price has been confirmed. In September, a first agreement for the month PX ECP was reached at € 1,270/ ton. A first agreement for the October PX ECP was also agreed at € 1,270/ton. Market participants have been expecting a second settlement for both ECP‘s, to have clarity on cost/price for PX, PTA, PET and downstream products in the polyester chain.
A second settlement for September has been reached at € 1,240/ton ddp and at € 1,270/ton ddp for October. The split settlements fix the PX ECP for September at € 1,255/ton and for October at € 1,270/ ton ddp.
PX values in Asia remained stable within the range $ 1,000-1,100/ton fob Korea since mid-July and are slightly below $ 1,000/ton fob Korea at the end of October and early November 2022. As the chart shows, PX values in Asia (blue line) have lost, at least temporarily, their relevance as the benchmark for the PX settlement in Europe, with the dynamics in the gasoline market being the main driver for the PX settlement in recent months. The red squares in the chart show the disparity with Asian PX values associated with the PX settlements in Europe. High disparity in PX values means a more competitive price in Asia and a potential threat for imports of PX and downstream products, including PTA and PET.
Disruptions in the gasoline market, which impacted paraxylene (PX) and thus PTA/PET cost and prices in recent months, have not completely disappeared. High mixed xylene values have again influenced PX negotiations in October leading to high disparity with Asia and high PX prices, which are moving in the opposite direction to what the current dynamics in the polyester (PET) market would suggest.
The gasoline market remains extremely complex and having an unusual impact on chemical industries. European mixed xylenes supply was short and prices climbed in the second quarter (Q2) of 2022. Higher energy values and strong demand into gasoline as well as a shortage of gasoline blending components supported prices. Impact of imbalanced refining business, and higher gasoline-naphtha spreads, led blenders and refiners to use much more naphtha in the gasoline pool. However, the use of naphtha means blenders need higher octane, low RVP components (toluene and mixed xylenes) to meet gasoline specifications. Octane is tight, meaning that there are big premiums for gasoline blend components. The polyester industry is unable to afford the premiums that mixed xylenes producers get from blenders.
The position/strategy and profitability has been completely different for companies producing PX (buying mixed xylenes) or buying PX. Paraxylene production has been discouraged by high mixed xylenes values with 2 completely different markets (gasoline and PET) making use of the same molecule. Paraxylene buyers claimed the need to have parity with Asia to avoid high disparities and higher PET imports, which have reduced PET operating rates, thus affecting polyterephthalic acid (PTA) and PX demand.
The high PX values in recent months, but also the delays in settlements and therefore the uncertainty associated to the cost of PTA/PET remains one of the challenges for PET producers in the USA and Europe at a time that competitive imports and softening demand are reducing PET operating rates. Existing well-stabilized import channels and a decline or collapse of freight rates have contributed to higher imports.
PET imports to the EU: monthly per origin country (and others) 2017-2022 (Source: Tecnon OrbiChem)
At the same time, the European PET industry faces increasing challenges related to high, uncertain and volatile energy cost impacting cost/conversion of the main feedstock PX, PTA, monoethylene glycol (MEG) and isophthalic acid (PIA). Despite the high PTA deltas, MEG and PIA contract prices in Europe compared to other regions, and these values do not provide profitability to producers, who claim poor profitability and prefer lower operating rates than reducing prices. Dutch TTF natural gas prices, a representative reference for energy prices in the European petrochemical industry, were stable below € 90/MWh during the first half of June, increased to levels between € 150 and € 175/MWh in July, peaked at € 346/MWh at the end of August and are around € 125/MWh in October 2022. Although the TTF values at the end of 2021 were at € 50/MWh, the average levels for the year were around € 25/MWh.
Negotiations for 2023 contractual PET deliveries are being delayed until there is some clarity on the main cost (raw materials, energy). The uncertainty associated to TTF has encouraged/ forced producers of raw materials to propose minimum deltas/ adders and adjustments depending on the evolution of energy/TTF.
It is clear that the scenario has completely changed compared to Q2/2021 when contracts for 2022 where negotiated. All products in the chain were able at that time to pass a higher cost and improve margins amid high operating rates and limited alternative options including imports.
The European September and October 2022 paraxylene contract price has been confirmed. In September, a first agreement for the month PX ECP was reached at € 1,270/ ton. A first agreement for the October PX ECP was also agreed at € 1,270/ton. Market participants have been expecting a second settlement for both ECP‘s, to have clarity on cost/price for PX, PTA, PET and downstream products in the polyester chain.
A second settlement for September has been reached at € 1,240/ton ddp and at € 1,270/ton ddp for October. The split settlements fix the PX ECP for September at € 1,255/ton and for October at € 1,270/ ton ddp.
PX values in Asia remained stable within the range $ 1,000-1,100/ton fob Korea since mid-July and are slightly below $ 1,000/ton fob Korea at the end of October and early November 2022. As the chart shows, PX values in Asia (blue line) have lost, at least temporarily, their relevance as the benchmark for the PX settlement in Europe, with the dynamics in the gasoline market being the main driver for the PX settlement in recent months. The red squares in the chart show the disparity with Asian PX values associated with the PX settlements in Europe. High disparity in PX values means a more competitive price in Asia and a potential threat for imports of PX and downstream products, including PTA and PET.
Javier Rivera
Tecnon OrbiChem
Croydon/UK
Tecnon OrbiChem
Croydon/UK
