Overcapacity Dogs Polyester and Polyethylene Terephthalate Markets

25 February 2002 00:00  [Source: ICB Americas]

The polyester fiber and polyethylene terephthalate (PET) resins businesses remain weak because of overcapacity, but demand for the plastics remains strong. Sales of PET resins continue to grow as both the market for bottled fluids increases and PET continues to displace glass, aluminum and other materials. Polyester fiber is growing rapidly on a global basis, but the domestic textiles industry faces fierce competition from low-cost garments from Asia, and the clothing industry's shift to Asia is undermining the US market for polyester fibers.

The PET resin market is rebounding after a weak December. Sales in January and February "look good," according to Chase Willett, director, polyester and polyester raw materials at Chemical Market Associates Inc. (CMAI), Houston. Mr. Willett says excessive competition has made margins difficult, but good growth in bottled water, juices and sports drinks is keeping PET growth strong. The US market grew 8 percent last year and should grow another 7 percent in 2002. Nevertheless, the market is maturing. Over the last five years, the US market grew at an average annual rate of 11 to 12 percent, but over the next five years, average annual growth should be only 6 to 7 percent.

Too much PET resin capacity has been added too fast in Asia, Mr. Willett cautions. Excessive competition in the US and the threat of imports from Asia are blocking producers from raising margins. Plant outages at two producers are not yet affecting supply, according to Mr. Willett, but they could lead to tighter supplies over the coming months.

The polyester market continues to see downward pressure on pricing. Many textile mills have closed, and the supply of polyester fiber exceeds demand. "Pricing declined in 2001 because of oversupply," says Ian Julian, director of synthetic fibers at CMAI. "An unprecedented amount of textile mills have closed." He adds that pricing has stabilized somewhat, although it remains highly market and product specific. Global demand for polyester staple usually grows at a yearly rate of 2 to 4 percent, and domestic demand for staple in 2002 should be nearly 9.2 million tons.

Edgar F. Acosta, polyester manager at DeWitt & Co., Houston, says prices fell by 3 to 4 cents per pound in January. "Secondary and export markets are flooded with material, and there's a lack of demand," he says. He rates the market's excess capacity at 200,000 tons to 260,000 tons and notes that growth in South America has tapered off from 14 percent to 8 percent, backing up material that is usually exported to that market.

The domestic textiles industry continues to lose jobs and market share to Asia at an alarming rate. The American Textile Manufacturers Institute (ATMI) says the industry is facing its worst economic crisis since the Depression. According to ATMI, 103 textile mills closed last year, eliminating almost 67,000 jobs. Since September 11, the problem has worsened. Burlington Industries, CMI Industries and Malden Mills have filed for bankruptcy, and nearly 24,000 textile jobs have been lost. ATMI charges that the crisis has been caused by an average 40 percent decline in Asian currencies against the US dollar over the past four years, enabling prices for Asian fabric and yarn to drop by as much as 38 percent. A further problem, ATMI says, is massive smuggling of Asian textiles and apparel into Mexico and the US so Asian products can claim Nafta origin.

Two weeks ago, DuPont announced it will combine its nylon fibers, polyester fibers and Lycra fiber businesses and their intermediates and joint ventures into a $6.5 billion wholly owned subsidiary DuPont Textiles & Interiors. The business will be the world's largest integrated fibers company and hold the number one position in six markets that comprise 75 percent of its revenue. DuPont plans to spin off the business by the end of 2003. The company will examine a full range of options for the textiles and interiors unit, including an initial public offering.

In January, Wellman Inc. revealed it will reorient its polyester fibers business toward more value-added products. The company is reviewing strategic alternatives for its partially oriented yarn business, which has a plant in Fayetteville, N.C., and its polyester staple fiber plant in Marion, S.C. The company also continues to evaluate the most profitable use of the idle staple fiber plant at its site in Pearl River, Miss. Wellman expects to announce its plans during the first half of the year.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly