FOCUS: China PTA, MEG uptrend may not last

26 April 2007 04:45  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Prices of polyester feedstocks have made strong gains in April but whether this will continue beyond mid-May is unclear as the seasonal lull usually kicks in later that month, buyers and sellers said on Thursday.

Purified terephthalic acid (PTA) spot prices were at $930-940/tonne CFR (cost and freight) China on Wednesday, up from last week’s $920-930/tonne and much higher from early-April’s $875-885/tonne.

Meanwhile, monoethylene glycol (MEG) spot values were at $900-910/tonne CFR China, up from $885-890/tonne earlier in the month.

“Demand for the feedstocks has been very strong. Basically, we can sell all the cargoes we have, and even had difficulty getting competitive offers,” a Macau-based trader said.

Yet, the prevailing bull run might not last beyond the week-long Labour Day holidays, which starts on 1 May, and a price correction could occur in the later part of the month.

“May and June is the start of the polyester and textile seasonal lull. Anybody who thinks that end-users would simply keep buying [PTA and MEG] without thinking of their own margins must be too taken in by recent weeks’ bullishness,” a senior official from Zhejiang Cifu said.

The firm is one of the largest polyester producers in eastern China.

A Singapore-based trader said, “If upstream prices such as ethylene, PX, PTA and MEG continue to rise, and the downstream sectors follow with their own price gains, all will be fine.”

“If not, we can all be in trouble,” added this trader.

But that is yet to come and for now, PTA makers are enjoying good margins.

“We cleared all inventories this month, and had made a good profit for the month,” an official from Chinese PTA maker Xiang Lu Petrochemical said.

“Since late March, sales among polyester makers had been very good in general. The best thing was that the positive sales were across the board, extending to all grades of material,” an official from Xiang Sheng Polyester said.

The company produces polyester filament yarns in Xiaoshan in eastern China.

A senior official from polyester maker Zhejiang United Fiber agreed.

“Just as recently as early March, selling fibre chips failed to earn us any money. Now we’re having a margin of at least 100-200 [yuan per tonne],” he said.

Polyester filament yarn producers in China generally have enjoyed margins of as much as yuan (CNY) 800/tonne ($104) in the past 3-4 weeks, while polyester fibre makers were making profits of about CNY100-150/tonne.

Sellers of semi-dull fibre chips could earn around CNY200/tonne, while bottle chip producers were having profits of at least CNY300-400/tonne, with those exporting enjoying an even higher margin.

“All this means, even if PTA and MEG prices rise way beyond $900/tonne, we will still continue production and buy the feedstocks,” a senior official from Jiangsu Senjo, a yarn maker based at Taicang in eastern China, said.

Besides the downstream factor, market participants also believed that price discipline among suppliers, a shortage of supply for MEG and rising upstream values contributed to the uptrend in PTA and MEG numbers.

“Come what may, I’m not selling at a loss this month, like what had happened earlier this year,” a source from a mid-sized Taiwanese PTA producer said.

“This is our long-awaited chance to make money, and demand is so strong, I will resist any attempt to talk down prices,” said another source from the same PTA producer.

With feedstock paraxylene (PX) costs rising towards $1,300/tonne CFR (cost and freight) NE (northeast) Asia this week, it was steeling PTA sellers resolve to hang on to their lofty offers.

“Our costs are very clear, and we want to make money too. As long as our customers can accept the [higher] prices, we will push for the [higher] price,” a source from Hualian Sunshine Petrochemical, another Chinese PTA producer, said.

But for MEG sellers, it was obvious the shortage, particularly from deep-sea sources, was more a factor in keeping prices up rather than rising feedstock ethylene costs.

“Yes, ethylene prices rose but margins for MEG producers were still intact. Look around you, there is hardly any spot cargo floating around. With demand so strong, buyers will know that prices would naturally have to rise under such circumstances,” a trader familiar with deep-sea business said.

($1 = CNY7.72)

By: Salmon Aidan Lee
+65 6780 4359

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