Project watch: Good growth, poor m argins

03 February 2003 00:00  [Source: ACN]

The robust global demand growth forecast for PET resins for the next few years is being weighed down by overcapacity and thin margins. Unfazed, some Asian producers are pursuing new projects and expansions, reports Kamachi Ruthramurthi

The good news for the global PET resins markets is that they will continue to recover, with demand growth forecasts in the double-digit range.

The bad news is that they will still be plagued by overcapacity and poor margins.

On the upside, global demand for PET resins is forecast to rise by 30.4% from 9.2m tonne in 2003 to 12m tonne in 2006, according to Far Eastern Textile (FET).

The Taiwanese polyester major also estimates Asian demand for the product to grow by 54.3% from 1.75m tonne in 2003 to 2.7m tonne in 2006.

The forecast does not include the Middle East as the region does not produce much PET. But some companies there are planning a few projects in the next few years and it would be interesting to see how these affect the global demand/supply situation.

The main driver for the demand growth is the increasing use of PET resins instead of PVC and PP because the latter two are more expensive.

One Hong Kong-based analyst told ACN: 'With PP and PVC prices expected to continue to rise, many more packaging producers could switch to PET resins.'

PET resins are used mainly to produce bottles for mineral water, soft drinks, edible oils and pharmaceutical containers. New applications are being created for these resins, which could give demand a further push, the analyst said. 'For instance, wide-mouthed PET jars are being created to replace glass jars which are usually used for baby food, jams and jellies.'

He said producers are also aiming to replace aluminium cans and glass bottles, used for alcoholic drinks such as beer, with PET bottles. But it would take a while, if at all, for people to feel comfortable about the idea of 'beer in plastic bottles', he pointed out.

The downside for PET resins is the global oversupply due to extra capacities coming onstream from expansions and new projects.

Producers in Asia brought about 1.67m tonne of PET resins onstream in 2002, 1.02m tonne of which came from China alone, according to FET. They plan to increase this capacity by 581 500 tonne in 2003, 650 000 tonne in 2004, and 100 000 tonne in 2005, said FET.

Producers of polyester fibres are also continuing to switch to making PET resins because of the poor fibre prices and the slack demand for the product.

Shinkong Synthetic Fibres, for example, converted its 3000 tonne/month (36 000 tonne/ year) polyester staple fibre (PSF) line to produce 200 000 tonne/year bottle-grade PET last year because of poor polyester markets. Nan Ya Plastics also converted its PSF line to produce 150 000 tonne/year of PET last year.

Aggravating the problem further are the high prices of feedstocks purified terephthalic acid (PTA) and monoethylene glycol (MEG), which have dragged PET-resin margins down.

PTA prices for February are estimated to be around US$600/tonne cfr Asia. This would be a US$65-70/tonne increase from January prices. The price rise is due to tight supply as a result of recent plant turnarounds and production outages, and soaring paraxylene prices.

Last year, PTA prices were in the range of US$560-650/tonne cfr Asia in Q2 before dipping to US$530-535/tonne cfr Asia in Q3.

Market observers, however, expect PTA prices to soften in the next few months with new capacities coming onstream (ACN 20-26 Jan, p23).

This does not appear to be the case for MEG prices, which soared last month to US$610-620/tonne cfr Asia compared with US$340-360/tonne cfr Asia in Q1 last year. The rise was due to scant availability of the product in the Asian market and surging ethylene prices.

Last year saw MEG prices rise to US$610-620/tonne cfr Asia in Q3 from US$400-530/tonne cfr Asia in Q2.

It does not look like the upward trend will end soon as the forecast is for prices to hit US$650/tonne cfr Asia in March. Yet, some producers are ignoring these high feedstock prices, poor margins and the global glut to pursue expansions and new projects.

Producers who brought extra capacities onstream, especially during 2000-02, were spurred by optimistic demand-growth projections for 2000-06,the analyst said.

But they were not prepared for the margin squeeze as a result of soaring feedstock prices.

'By the time producers realised what a bad idea it was, it was just too late as they had already started constructing or expanding their plants,' the analyst noted.

He expects some projects that have not started construction work to be delayed because of the glut in the market. He declined to name those projects.

It would also be interesting to see what impact the additional capacities being planned for the Middle East (see table) will have on prices, given the competitive feedstock advantage that the region enjoys.

When the supply and demand situation will find a balance is anyone's guess. The analyst seems to think the balance will come in mid-2004 and a few producers ACN spoke to are predicting a balance in just over two years.

However, there were also some producers who said they do not expect a balance in the market in the foreseeable future.

In the meantime, Asian producers are employing different strategies to cope with current market conditions..

SK Chemicals is one such company. It decided to build a 120 000 tonne/year PET bottle-grade chip plant in Wloclawek, Poland, instead of in Asia (ACN 9-22 Dec, p24). The company plans to market its product to eastern and central Europe when the plant starts up in March 2004 because European markets are expected to tighten over the next couple of years with continued strong growth and limited expansions.

According to Tecnon Orbichem, demand growth in Europe is expected to be in the range of 10-11%/year to 2005, before falling to 8.5%/year up to 2010.

An SK Chemicals official told ACN that he estimates demand in Asia to grow by at least 10%/year for the next five years. But with the oversupply in Asia, it still makes more sense to pursue projects outside of Asia, he said.

'If we were to build a plant in Asia and then export the product to Europe or South America, we would not be able to sell our product competitively because of high freight costs,' the official said.

Furthermore, if the company had built a plant in Asia, it would not have been able to export its product to Europe because of the antidumping duties imposed by the European Union on PET-resins producers from South Korea, Taiwan, India, Thailand, Indonesia and Malaysia.

SK Chemicals is already mulling another PET bottle-grade plant at the Wloclawek site (ACN 29 July-4 Aug, p19). It is also considering building another overseas plant in either South America or China (see p24).

India's second largest PET-resins producer, Futura Polyesters Ltd (FPL), has a different strategy. A senior company official told ACN that it has delayed expanding its 60 000 tonne/year plant to 72 000 tonne/year to June 2003 from March 2003 because of poor market conditions but will add a further 28 000 tonne/year by December this year (see p24).

He said the company could justify the expansions because domestic demand for PET resins is estimated to grow at a minimum of 25%/year until 2006. Indian consumption of the product is estimated at about 100-105 000 tonne of PET resins this year, up from 80 000 tonne last year and 65 000 tonne in 2001.

The increase is attributed to the rise in demand for one-litre PET bottles by producers of mineral water. Demand for such bottles is estimated to rise by 20-25% in the next 3-4 years. Demand for PET bottles used for carbonated drinks is forecast to rise by 10% in the same period.

The source said that companies planning expansions and new projects in India are unfazed by the overcapacity there because the producers are able to export their products to the US, especially to South America where demand for PET resins is growing at 10-18%/year.

India has a total nameplate capacity of 250 000 tonne/year; this is expected to increase to 650 000 tonne/year by end-2003 as a result of new capacities coming onstream (see table).

Many companies, including FPLand Thai Shinkong Industrial Co (TSIC), are pursuing expansions despite current market conditions because they expect the expansions to reduce their companies' overhead costs by maximising the use of facilities to achieve economies of scale.

TSIC is considering debottlenecking its 320 000 tonne/year bottle grade PET plant in Mab Ta Phut, Thailand (see p24) because it is confident it can export its product to the US.

Producers can only wait and see which strategy will pay off. It also remains to be seen whether demand growth will continue to be sufficiently robust to compensate for the glut and margins squeeze.

Asian PET resins projects
Company Location Capacity Startup Status

Beijing Yanhua Petrochemical

China (x)20 000
55 000T
2003 P

Futura Polyesters Ltd

Chennai, Tamil Nadu, India (x) 12 000
72 000T
June 2003 delayed from
(x) 28 000
100 000T
Dec 2003 P

Indian Oil Corp

Panipat, Haryana, India 165-198 000 - S

Intergulf Empol

Hamiraya Free Trade Zone, Sharjah, UAE 80-100 000 2004 P

Nanjing Chemical Industry Park

Nanjing, Jiangsu, China 100 000 2005 P

Nan Ya Plastics

Kunshan, Jiangsu, China 88 000 end-2004, early 2005 P

National Petrochemical Co

Bandar Imam, Iran 177 000 Q4 2003 U
132 000 end-2004 P
Assaluyeh, Iran 400 000 2005-09 P

PetroVietnam

Nghi Son, Vietnam - 2008 S

Polypet Karyapersada

Merak, Banten province, Indonesia (x) 26 000 2003 P, delayed
100 000T from 2002

Reliance Industries

Hazira, Gujarat, India 220 000 July 2003 U

San Fang Xiang

Shanghai, China 100 000 2004 P

Shanghai Petrochemical

Shanghai, China (x)100 000 2005 P
106 000T

Shantou Ocean Group

China (x)100 000 2004 P
110 000T

Shaoxing Zhanwang Enterprise Group

Shaoxing, Zhejiang, China - - P

South Asian Petrochemicals

Haldia, West Bengal, India 140 000 April 2003 U

SK Chemicals

Wloclawek, Poland 120 000 Mar 2004 U
Wloclawek, Poland 130 000 2007 S
South America or China - - S

Thai PET Resin

Mab Ta Phut, Thailand 100 000 1 Jan 2004 E

Thai Shinkong Industrial

Mab Ta Phut, Rayong, Thailand (x) 2003 S

Xianglu Petrochemical

Xiamen, China 100 000 2005 P

Yizheng Chemical Fibre

China (x)50 000
170 000T
2003 P
(x) 100 000 2004 P
270 000T
SOURCE:ACN T=total; (x)=expansion; S=study; P=planned; E=engineering; U=under way




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