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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.

• 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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• 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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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.

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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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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• 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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• Platts petrochemicals experts are available for media interviews. A sample list of experts may be

found at the Platts Media Center. For more information on petrochemicals, visit the Platts website at www.platts.com. Additional media contact: Elizabeth Catalano at elizabeth.catalano@platts.com or +44 207 176 6024.

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