PX-MX price spread affects China and Asian PX plant operating rates

In Jul, China domestic PX plant operating rate hiked to reach 5-year high of 88.1%. Outside China, the operating rates is also recovering as the intensive turnaround season has ended. The average operating rate this Jul has exceeded that in the same period of past two years.

However, since the middle of Jul, China domestic PX plant operating rate has been slipping from the high, approaching 85.2% on Jul 26. Sinopec Jiujiang has shut its PX plant on Jul 28 for week-long maintenance, and thus the average operating rate is expected to drop further. Outside China, however, with ENEOS, Idemitsu and Petro Rabigh restarting their plants in Jul, Asian PX plant operating rate rebounded to this year's high.

The operating rate correction in China and high operating rate in Asia are attributed to PX-MX spread.

In China, PX-MX price spread on yuan basis has been squeezed persistently. PX units based on MX are currently at immense losses. For big refineries, the MX is still mainly used for PX production, as gasoline blending profit is meager. For some factories, which purchased merchant MX as supplement for PX production, it is not economically viable in Jul.

Then, what's the reason for the resilience in China domestic MX price? Firstly, some plants, undergoing maintenance, have delayed the restarts, and some began maintenance in Jul, leading to tight supply of MX. Secondly, the amount of arrivals of imported goods is quite low, and tank inventory of MX at coastal regions keeps reducing, supportive to the price. Thirdly, the price was driven up by uptick of gasoline blending demand in some periods of Jul. As a result, yuan PX-MX spread has narrowed sharply.

Outside China, PX-MX price spread on USD basis presented a V-turn trend in Jan-Jun, averaging $70/mt. The spread consolidated to average $86/mt month-to-date in Jul. The movement of PX-MX spread is depending on gasoline blending. In the beginning of the year, MX price strengthened due to strong demand from the US. Several PX units in South Korea either cut production or shut due to squeeze in PX-MX spread, while using MX in blending or for sale instead. Then, as the demand was sated, MX price pulled back, and USD PX-MX spread has widened since May. Some PX units either restarted or raised operating rates.

In a conclusion, some PX units in China, purchasing MX earlier, has lowered operating rates, while outside China, restricted by weak gasoline blending economics, MX is used for PX production, and the operating rate is unlikely to reduce.