Annual paraxylene term negotiations for 2014 have gotten off to a slow start in Asia, and talks are expected to be protracted, as the supply/demand fundamentals are expected to change significantly halfway through next year, sources involved in the negotiations said Thursday.
The term negotiations are led by the big four producers in Asia -- South Korea's GS Caltex and SK Innovation, and Japan's Nippon Oil and Energy and Idemitsu Kosan -- while the buyers are mainly Chinese producers of purified terephthalic acid.
According to sources, JX and Idemitsu have made initial offers at a premium of $7.50/mt to a typical pricing formula which consist 50% of Platts CFR Taiwan/China PX assessments and 50% of the monthly Asian Contract Price settlements. SK, meanwhile, has made an initial offer at a premium of $5/mt to the pricing formula, sources said. The nomination levels are unchanged from the 2013 term contract prices.
Discussions have been slow so far, said sources.
"Typically, the producers reveal their nominations during the annual conference of European Petrochemical Association [in early October]. But it seems JX was the only one who revealed its nominations during the conference," said one source.
Another source said that nominations from the South Korean producers have just started to come in.
Buyers, meanwhile, have been reluctant to place counterbids.
"The demand and supply situation is expected to change dramatically next year so it is very difficult to place bids," said one buyer.
The Asian PX market is expected to shift from tight this year to a likely supply overhang next year, particularly in the second half, due to new PX plant startups.
In India, state-owned Oil and Natural Gas Corporation plans to start up its 900,000 mt/year PX plant in New Mangalore during February or March. In the Middle East, Saudi Aramco Total Refinery and Petrochemicals Company plans to start up its 700,000 mt/year PX plant in Jubail, Saudi Arabia, next January.
In South Korea, SK and JX plan to start up a 1 million mt/year PX joint venture plant in Incheon in the second quarter of 2014
"Considering these startups, PX supplies are seen to be rising toward H2 next year, which makes it difficult for the term negotiators to agree on a single premium," a source said.
One PX supplier said there may be an option to have two different premiums -- for H1 and H2 -- reflecting the dramatic shift in supply/demand fundamentals.
PX demand has been strong in recent years, in tandem with new PTA plant startups in China. But demand is not likely to increase further, as no PTA plant startups are planned for next year.
Meanwhile, some Chinese PX buyers have been asking for more delivery port options, sources said, adding that buyers want to have more flexibility amid changing market conditions.
But suppliers have so far been reluctant to accept this, sources said.
"Considering all this, I don't think the negotiations would end before the end of December. In such case, buyers will need to secure PX cargoes in the spot market," said one source.
