13 July 2001 03:27 [Source: ICIS news]
SINGAPORE (CNI)--Asia's purified terephthalic acid (PTA) players have bold expansion ambitions based on the precarious assumption that PTA margins will have rebounded by 2003, Asian Chemical News, CNI's sister service, reports in a feature which will appear in its 16 July issue.
The last six months have seen five companies submit proposals for new projects to the Chinese government. They include those by PetroChina for a 530 000 tonne/year plant on behalf of its subsidiary Liaoyang Chemical for a plant at Liaoyang and DuPont for a 530 000 tonne/year facility.
Add to these six the projects that are well down the track to completion and Asia confronts a great deal more capacity predicated on the long-awaited upswing. Formosa Chemicals & Fibre Corp, for instance, will bring onstream a 420 000 tonne/year plant, at end-2001 at Loong-der, Taiwan, the capacity of which will be gradually raised to 500 000 tonne/year.
Companies obviously have to forge ahead with capacity additions to maintain or enhance their market share. But even a quick glance at PTA markets shows that current prices are below re-investment levels and have been for more than two years. PTA margins are currently around $175/tonne (Euro205.5/tonne ). Re-investment levels vary according to a plant's location, size and technology but a rule of thumb is that producers need margins of around $250/tonne.
The batch of new plants due onstream in 2003 have been planned on the basis of a margin upswing in 2001-03. If this does not occur, then several projects from the next wave of capacity due to be commissioned in 2006-07 may not be realised.
Why is the assumption of a 2001-03 recovery so precarious?
ACN reports that one principal is the phenomenal growth in batch polymerisation capacity in China. An estimated 1m tonne/year came onstream in the People's Republic in 2000 with a further 1m tonne/year due to be commissioned in the next 1-2 years in China. The growth in supply is outstripping the strong demand growth.
China's PTA demand is surging, creating the paradox that, very soon, a weak polyester industry will confront a tight PTA market.
However, the issue, despite the theoretical upper hand for the PTA players, is whether the weak polyester industry will be able to afford PTA prices that are at least at re-investment levels.
*To subscribe to Asian Chemical News, contact Amy Yeo on 65 434 3349 or e-mail her at firstname.lastname@example.org
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