US shale gas boom triggers reversal of mixed xylenes arbitrage with Asia

1. © 2013 Platts, McGraw Hill Financial. All rights reserved.
US shale gas boom triggers reversal of mixed xylenes arbitrage with Asia
By Michelle Kim in Singapore
May, 13,2014
Additional media contact: Elizabeth Catalano at elizabeth.catalano@platts.com or +44 207 176 6024.

2. • The US shale gas boom has triggered a reversal of the mixed
xylenes arbitrage with Asia, making it economical to send Asian
material to the US, where the ongoing shift to lighter feedstocks
has cut aromatics yields by as much as 55%, sources said.
• The previous MX trade flow from the US to Asia has been shut for
most of the past year, mainly due to higher prices and lower output
in the US and lower prices in Asia.
• The trend has been reinforced by the persistently weak Asian MX
market due to bearish downstream paraxylene and polyester chains
but firmer toluene and increased MX demand in the US for gasoline
blending.
• Taiwanese PX producer CPC sold 5,000 mt of MX to the US for
loading in the first half of May, according to market sources.
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3. • Previously, the US was a net exporter of MX and
accounted for roughly 25% of Asia's MX imports (see
chart), or about 800,000 mt/year. That was when the
Asian market typically needed the outside supply to meet
its estimated 3.3 million mt/year of regional spot
demand.
• But the Asian MX market now faces an oversupply due to
bearish downstream PX and purified terephthalic acid
since mid-2013. And the US MX market has been firm on
lower aromatics yields (see chart) from a shift to lighter
feedstocks resulting from the shale gas boom.
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4. Asian spot isomer-MX market size, US-Asia
arbitrage MX volume accounts for 25%
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• This situation has changed since 2012-2013 when US shale gas boom reduced
MX volumer from the US to Asia.

5. US MX becomes firm on tight supply due to
shale gas boom
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• South Korea's MX imports from the US have plunged 55%
(see chart) to 395,820 mt in 2013, from 888,046 mt in 2011,
according to customs data.
• The MX arbitrage window from the US to Asia was closed for
most of 2013 due to high US prices.
• The average CFR Taiwan isomer-MX assessment in 2013 was
$1,264.43/mt, compared with the average FOB US Gulf Coast
assessment of $1,240.83/mt, according to Platts data. The
spread needs to be at least $60-70/mt for the arbitrage to
work, given typical freight rates from the US to South Korea or
Taiwan.

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9. Firm toluene drives US demand for MX
blendstock
• Before the arbitrage reversed, MX cargoes were rarely sent
from Asia to the US, as Asian isomer-MX is not considered on-
spec in the US aromatics market.
• The US MX market uses ASTM D5211 for its on-spec
qualifications, while Asia uses ASTM D843. The former has a
stricter 0.3% cap by weight on non-aromatics content, while
the Asian standard allows up to 1%. That means Asian MX
cannot be used as a PX feedstock or as a substitute for
solvent-grade mixed xylenes.
• However, recent firm Asian toluene prices have boosted
demand for MX as a gasoline blendstock in the US.
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11. About PGPI
• The FOB Korea toluene marker surpassed the FOB Korea
isomer-MX marker (see chart) on February 21 at
$1,092.50/mt against $1,087.50/mt, for the first time in
27 months, Platts data showed.
• Asian toluene prices were driven higher by the firm Asian
benzene market and by strong demand from the US,
where toluene is used a feedstock to produce benzene
and MX via the toluene disproportionation process. High
TDP operation rates to make benzene have supported
demand for toluene, while MX supply piled up in Asia.
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• The US' April-September summer driving season has also
boosted demand for Asian MX from gasoline blenders.
• A number of market participants expect that the
reversed MX arbitrage from Asia to the US to become
common going forward, as Asian MX could keep falling
with bearish PX and polyester chains.
• "If Asian MX cannot be consumed in Asia, it has no
choice but to head to other regions," a Seoul-based
trader said May 8.

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