Propping Up Korean Chemical Business
Paraxylene (PX) is buttressing South Korean chemical companies facing difficulties amid the ongoing global economic recession and oil price fluctuations. Their PX exports are estimated to total an all-time high of US$7.8 billion this year.
According to the Korea Petrochemical Industry Association, Korea’s PX exports added up to US$7.01 billion from January to November this year, up 29% from a year ago. Korea’s annual PX exports stood at US$4.5 billion from 2013 to 2016 before jumping to US$6.046 billion last year.
Those in the industry take note of not only the increase in exports but also an increase in spread, which is defined as the difference between the PX price and the price of naphtha as its raw material.
From January to November 2018, South Korean chemical companies’ PX export volume totaled 6,756,000 tons, edging up 2% or so from the previous year, whereas their export revenue increased 29%. This means the spread increased a lot during the period. The spread was about US$311 per ton in December 2017 but rose to US$566 in the second week of this month. In September this year, the spread amounted to US$635, significantly contributing to the companies’ Q3 performance.
According to industry insiders, the increase in spread resulted from increased demands from China. This year, Chinese companies had to delay the operation of their PX production facilities due to the lack of technology and the Chinese government banned the import of waste plastic for PET bottle production to result in an increase in the demand for PX as an intermediate material. From January to November, South Korean companies exported PX worth US$6.224 billion to China.
The current situation is likely to continue next year. In addition, demands from the United States are expected to increase as Chevron Phillips Chemical recently decided to shut down its PX production facilities with an annual capacity of 495,000 tons. Dragon Aromatics, a Chinese company with an annual capacity of 1.6 million tons, is conducting longer-than-planned regular maintenance. ExxonMobil’s plant in Singapore, which is capable of producing 1.8 million tons of PX a year, is scheduled to stop operating in January and February 2019.
This situation is a boon for SK Innovation, S-Oil and GS Caltex, which are worried about their Q4 performances with oil prices falling along with their oil refining margins. SK Innovation produces 2.6 million tons of PX year and the annual capacity is 1.9 million tons and 1.35 million tons as for S-Oil and GS Caltex, respectively. Their oil refining losses are expected to be offset by PX.
The situation can change in the second half of 2019 though. Chinese companies are likely to increase their production by more than 20 million tons in 2019 and 2020. This will have a significant impact on the South Korean companies, which export approximately 90% of their PX to China. “It remains to be seen whether Chinese companies will be able to run their plants as scheduled,” said an industry source, adding, “The South Korean companies can be at ease until the first half of 2019 with the global polyester demand stable and the global naphtha price on the decline.”