Bleak Downstream Demand Weighs Down European Ortho-Xylene Prices

Ortho-Xylene (o-Xylene) prices have dragged down across the European market during the last week of November 2023. A cocktail of lukewarm demand, comfortable supply, and a receding upstream chain strained o-Xylene prices. Market participants flagged that the deteriorating demand outlook accelerated destocking activity towards the year's end.

According to ChemAnalyst's latest database, o-Xylene prices have declined by USD 30/MT in the German market. The feedstock Mixed Xylene prices have continued to drop, resulting in the low manufacturing cost of o-Xylene in the domestic market, leading to bearish market sentiments of o-Xylene among the manufacturers. In addition, the manufacturing firms have operated at low rates as demand from the downstream industry has shown no sign of improvement. Moreover, the availability of finished stock of o-Xylene was sufficient to cater to overall downstream demand. Meanwhile, cheap competitive offers from the Asian market have further pressured the prices of o-Xylene domestically. As a result, prices of o-Xylene CFR Hamburg were settled at USD 1300/MT during the week ending 24th November.

Regarding demand, the domestic market has seen lackluster interest from the downstream Phthalic Anhydride industry, largely due to the subdued consumption from the end-user construction sector. As per the sources, the construction purchasing manager index dropped from 39.3 in September to 38.3 in October 2023, mirroring the contraction in new orders. Market participants reported the sluggish demand has kept exerting pressure on the seller's side as buyers either made constrained purchases when needed or stayed in a wait-and-see perspective in anticipation of additional decline. Consequently, o-Xylene prices operated at a low level in the domestic market. In addition, it is a major producer of o-Xylene in the European market. Shell has announced a significant annual decrease of 34% in its third-quarter profit, falling to $6.2 billion, due to dipping energy prices. However, robust trading in Liquefied Natural Gas (LNG) has helped to counterbalance a steep decline in its production. 

The European Central Bank (ECB) has also maintained its three key interest rates due to concerns that the 20-nation eurozone may have entered a recession. The ECB had increased its baseline interest rate ten times in an effort to mitigate the effects of record-high inflation. Inflation reached its peak of 10.6 percent late last year and decreased to 3.8 percent in October. However, it remains above the ECB's official target of 2 percent.

Looking ahead, ChemAnalyst expects a further drop in the o-Xylene prices with no glimmers of hope for improving market fundamentals. The December outlook remains pressured by high stock levels, tepid demand, and weak upstream costs. Year-end destocking activities and buyers' leave during year-end holidays will curtail demand to an important extent.