FOCUS: Asian PTA, MEG producers slip into loss

12 June 2006 05:23  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Asian polyester intermediate producers' margins have slipped into the red for the first time since 2002, as they struggle to pass high feedstock costs down the production chain, producers and traders said.

Mono ethylene glycol (MEG) suppliers had been enjoying profits until this month, while most purified terephthalic acid (PTA) makers were still making money until early this year, they said.

The polyester intermediate producers are being squeezed between higher upstream costs and lower pricing power given greenfield PTA and MEG capacity and expansions.

Paraxylene (PX) costs have shot up to beyond $1,300/tonne CFR Taiwan $1,030-1,060/tonne in early May in the spot market. While contract prices are still lower than spot numbers, they look set to breach the $1,200/tonne CFR Asia mark for July.

“With PTA prices around $880/tonne CFR China now, we’re basically making losses,” said an official from a mid-sized Taiwanese producer, who said that his company had made intermittent losses since late-2005.

Even the bigger producers are feeling the heat. China American Petrochemical Co (Capco), Asia’s largest PTA producer with six lines in Taiwan, has had to “rationalise its operating rates”, in the words of a company source.

The company shut two lines in Kaohisung in May, “in order to limit the need to buy spot PX” and also to keep moderate inventories as May sales had been “less than positive”, the source said.

MEG producers face a similar problem, although they only started making losses in the second quarter of this year, said a source from market leader MEGlobal.

In Taiwan, Nan Ya Plastics and China Man-made Fibre Co (CMFC) had reduced operating rates at three of their units to around 85% of nameplate capacity since late May, “due to prohibitive ethylene costs”, said a Nan Ya source.

Spot ethylene prices throughout the world had skyrocketed recently, touching $1,140/tonne CFR in Northeast Asia and $1,230/tonne CFR in Southeast Asia last week.

MEG prices were lagging behind in late May around $800/tonne CFR China, way below break-even levels. Even with last week’s gains to $870/tonne CFR China, most producers were still facing losses.

Although MEG producers had managed to keep in the black for the most of this year, “we’re not really producing much glycols as prices of other ethylene oxide derivatives give better returns,” added the source.

Indonesia’s Polychem was also looking to reduce production by idling one of its two lines.

“We’re not even talking about profits; we’re talking about whether shutting down or keeping production will result in lower losses,” said a company source.

Downstream, because of the partial restructuring of the polyester industry in China last year, polyester filament yarn and chip producers are reaping profits.

“Much less capacity has been added this year, so the competition has been less stiff,” said an official from Zhejiang Heng Yi Polymers, one of the largest yarn makers in China.

So far, only two new lines representing a total polycondensation capacity of 400,000 tonnes/year have started up in China this year, with another new line of 250,000 tonnes/year starting up in August. This is in sharp contrast to an addition of more than 5 million tonnes/year in 2005.

But the profitable days are threatening to end for polyester makers as well, said the Heng Yi source.

Polyester fibre prices had been lagging far behind filament yarn values, due to stiff competition posed by natural cotton prices. Bumper cotton harvests in the past two years had weighed heavily on fibre prices, said a source from Jiangsu San Fang Xiang, China’s largest polyester fibre producer and also one of the world’s leaders.

For yarn producers, the textile seasonal lull between June and July had set in and prices have stopped increasing, said the Heng Yi source.

“Previously, the polyester guys suffered the most, but this year at least, we managed to make some money between April and May,” said a company official from Hangzhou Dao Yuan, a yarn producer.

“Now PTA and MEG producers have joined the ranks of the polyester guys,” said a Shanghai-based trader. “The profits have all gone upstream, to the PX guys, the isomer xylene guys, and the ethylene guys.”

By: Salmon Aidan Lee
+65 6780 4359

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