Could you introduce Chemium International?

Chemium is an American company founded in 2001 and operating across two verticals - petrochemicals and polymers. Because of the difficulty to get financing in Singapore, we shut down the Asian operation and we are now trading under our US and Swiss entities. Aromatics – benzene, PX, toluene, methanol and cyclohexane – represent our biggest share. Chemium is one of the premier companies in the xylene chain of toluene, benzene and paraxylene (PX). In the US, PX is sold based on the US contract pricing (USCP), while in Asia we use daily pricing benchmarks, so we found a gap in selling US customers PX based on CFR China plus the delta of freight. Yearly we ship 300,000 tons of PX from the Middle East, Europe, Israel and Turkey into the US and Mexico. 70% of the US and China contracts are today based on CFR China. We are also locking in the margins of the cargo by adding the forwarding pricing in the exchange, reducing our exposure to risks.

How has Chemium performed in the last 1-2 years?

Risk management is key in trading because margins are typically thin and credit lines from the banks are tight. Chemium has done extremely well because we manage risk very professionally, taking the right hedging calls. In the last three months, we’ve been shipping 50,000 tons of paraxylene while managing global risks. This year we are trying to cut the chain for our cargo shipping. One PX transaction can have 10 people in the chain, each taking invoices and further thinning the margin, so we are trying to invoice directly, with fewer intermediates.

Could you explain how has the financial environment for trading companies changed in Singapore?

Asia represents 70-80% of the turnover of most global trading companies. However, in the past three-four years, there have been momentous changes in the petrochemical trading scene in Singapore. As an important trading hub, Singapore is an HQ for most trading companies in the region, as well as hosting all international banks. But, after the incident with oil trader Hin Leong Trading owning billions to 20 major banks, international financing turned incredibly cautious towards traders. This was a big blow for most mid-size companies like us.

Today, 30% of traders’ business revolves around physical trading and shipping the cargo to the customer, while 70% is done on the exchange. The Singapore Stock Exchange (SGX) has an OTC platform for derivatives trading on products like benzene, styrene, or PX-naphtha spreads. About 12 million tons of aromatics were traded in the last year on the SGX, a huge increase in volume that has helped traders. I believe this volume will easily double in the next three years.

Another trend we follow is the arrival of hedge funds and proprietary trading in the petrochemical industry. Commodities tend to give hedge funds a better return compared to financial markets. More than 4,000 hedge funds are present in Singapore today and at least six have entered the petrochemical sector.

Singapore is evolving as a financial market also as a consequence of banks reshoring their HQ from Hong Kong. Moreover, a lot of Russian money is either moving to Dubai or Singapore.

What is underpinning the current escalation in prices for commodity chemicals?

With the Covid emergency diluting in the background, markets bounced back, as expected. But the Russia-Ukraine crisis is pressurizing supply considerably, putting prices higher compared to pre-pandemic levels. PX was priced at US$550/ton three years ago, and today this is US$1,200. Benzene and naphtha are also more than double. My view is that the war will not be resolved very easily; that, compounded with ongoing logistics and shipping challenges will keep oil prices high. When China resumes activity after the lockdown, we will see a big rally in demand. In spite of inflation, consumer spending will spike up. I am very bullish on the price of commodities, and I believe oil could climb up to US$130 a barrel.

Could you share your final message?

Our priority is to find strategic partners who can invest in the company. Chemium has matchless industry knowledge, long-lasting relationships, but also the integrity and hard work to assure our success. The market gives us the opportunity to make money, and this is exactly what we’ll keep doing.