By Malini Hariharan
In yesterday’s post the blog made a reference to the difficulty in settling the October Asian contract price (ACP) for paraxylene (PX).
Wide differences in price expectations have held up negotiations with buyers rejecting producers’ initial efforts to implement a steep $105-145/tonne hike in October contracts to $1,760-$1,800/tonne cfr Asia.
Buyers, citing weak purified terephthalic acid (PTA) markets and the fall in spot PX prices, have instead pushed for $1,500-1,550/tonne cfr Asia. PTA prices have fallen 7% since September with tight credit in China and volatile global economy dampening buying interest.
The lack of consensus has resulted in problems in settling business as the ACP is widely used in contracts across the region, explains Bohan Loh, the ICIS pricing editor for PX.
CBI Consulting estimates that around 20% of PX contract sales in Asia are 100% based on ACP while about 60% of contracts use a 50:50 mix of the ACP and spot prices.
The impasse in Asia has had a wider impact with players in Europe and the US unable to agree on October contracts in the absence of a clear price direction from Asia.
Asian buyers and sellers are now scrambling to find an alternative number to use in their October contracts. The crisis has also prompted critics of the ACP to call for a better mechanism – one that will also take into account feedstock costs and profitability of derivative purified terephthalic acid (PTA makers.
This demand has been made before but with both sides keen to emerge as winners it is hard to see a profit-sharing arrangement in this business.
Controversies are not new to the ACP mechanism and its demise has been predicted a number of times. The mechanism has survived and remains one of the few negotiated contract price for petrochemicals in Asia.
But with PX supply projected to remain tight in the foreseeable future this status is likely to be repeatedly tested in the coming years.