China Raises Self-sufficiency Rate

Korean refineries have benefited from a rise in Paraxylene (PX) prices amid a supply shortage this year.

Paraxylene (PX), which has been a cash cow for Korean refiners so far this year, is expected to become an "ugly duckling" next year. Korean refining companies benefited from a rise in its price due to a supply shortage this year. But industry experts say that it will be difficult for Korean companies to enjoy a prosperous business next year as large-scale PX production facilities in China will resume or begin operations from the end of this year.

According to the Korea Petrochemical Industry Association on October 14, Korea’s PX production capacity totals 10.1 million tons a year at the moment. SK Innovation has the largest capacity with 3,330,000 tons, including 1.5 million tons (14.3%) of Incheon Petroleum, 1 million tons (9.5%) of Ulsan Aromatics and 830,000 tons (7.9%) of SK General Chemicals. SK Innovation is ranks sixth in PX production in the world.

SK Innovation is followed by Hanwha Total with two million tons (19.0%), S-Oil with 1.9 million tons (18.1%), GS Caltex with 1.335 million tons (12.8%), Hyundai Cosmo Oil, a 50-50 joint venture between Hyundai Oilbank and Cosmo Oil of Japan, with 1.18 million tons (11.2%) and Lotte Chemical with 750,000 tons (7.1%).


PX is made by decomposing naphtha purified from crude oil or condensate. It is a material for production of PET and polyester fiber. This year, new plants in China, Vietnam, India and Saudi Arabia among others either delayed their operations or could not raise their operation rates due to facility problems. As China banned the import of waste plastics due to environmental problems, a PX shortage occurred. These developments benefited Korean companies beginning in the second half of this year.


Actually, the spread between PX and feedstock naphtha rose sharply from the second half of this year. It fell from US$361.91 in January to US$334.44 in June but soared to US$547.85 in August and to US$630.77 in September. In October, the spread stands at US$607.80. Accordingly, Korean companies have enjoyed a rise in their profits.

The problem is that the price of PX is forecast to drop next year. This is because China’s self-sufficiency rate is expected to rise. China's PX production amounted to about 12 million tons, but its PX imports stood at 14 million tons in 2017. Total demand for PX in China is about 24 million tons and its PX self-sufficiency rate is estimated at 50%.

Of China's PX imports of about 14 million tons in 2017, Korean products accounted for about 6.6 million tons, nearly 50%. China is the largest market for Korean PX producers. Korean PX export volume to China accounts for 62.8% of its total PX production (10.51 million tons). This means that if China raises its PX self-sufficiency rate, Korean companies will be hit first.

China’s PX self-sufficiency rate is expected to surge to 80% in 2020 from current 50% as Fujian Fuhaichuang (formerly known as Dragon Aromatics) with an annual production capacity of 1.6 million tons will restart its operation, while Hengli PC and Zhejiang PC will start their new production facilities at the end of this year.

"China accounts for 60% of global PX demand of 40 million tons per year. Thus, a rise in China’s PX self-sufficiency rate will inevitably deal a direct blow to countries exporting PX to China," said Yoon Jae-seong, a researcher at Hana Daetoo Securities.

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