FOCUS: China PTA, MEG jump on strong demand

22 May 2007 04:14  [Source: ICIS news]

SINGAPORE (ICIS news)--Prices of China purified terephthalic acid (PTA) and monoethylene glycol (MEG) prices have jumped in the past month due to robust demand, balanced-to-tight supply and spikes in feedstock costs, buyers and sellers said.

This trend could go on in the next two weeks, they added.

In early April, spot PTA was at $875-885/tonne CFR (cost & freight) China, and rose to $920-930/tonne by mid-April. As of last week, spot prices stood at $950-960/tonne.

The rise in MEG spot numbers was steeper. In early April, they were at $885-895/tonne. But by mid-April, MEG stood at $900-905/tonne, before spiking to $950-965/tonne last week.

“Demand had been very strong, and almost every end-user was keeping production at full operating rates, some even at more than 100% [of nameplate capacity]” said a trader from BCF Trading.

Since the latter part of March, polyester operating rates in China had hit 100% for almost all plants, and some in the eastern provinces of Zhejiang and Jiangsu were even producing as high as 130% of nameplate capacity, buyers and sellers said.

“The orders for China-made garments, especially during the Canton Trade Fair which just ended, and strong domestic demand generally boosted demand for polyesters, which in turn strengthened feedstocks orders,” said a company official from Xiang Sheng Group, a polyester producer in Xiaoshan in Zhejiang.

As the downstream sectors from polyester to spinning and weaving and to dyeing and apparels basked in profits, production had been exceptionally high, said a company official from Rong Hao Textiles, a spinner based in Shaoxing in Zhejiang.

“Some of the [polyester and textile] makers were also rushing to complete exports for the year by June or July, as they expect tax rebates for exports would be reduced after that,” said a source from Rong Sheng Polyester, a major polyester manufacturer in Xiaoshan.

Since March, the market has been rife with talk that the Chinese central government would reduce rebates for made-in-China textile products in the middle of the year, possibly in June or July.

With reduced rebates, already wafer-thin margins for Chinese textile makers would be squeezed even further, while polyester producers saw less incentive to buy imported PTA and MEG.

But it appeared that this factor was crucial in keeping the Chinese textile industry working overtime, it was not the main consideration for PTA and MEG buyers in the past month.

“PTA may be readily available from Chinese domestic sources, but China is still short, especially with such high polyester production,” said a trader with Zhejiang Grand International, a major opener of letters of credit for local companies in Zhejiang.

“As for MEG, needless to say, imports form the bulk of what’s available in the market,” added the trader, who also pointed to reduced deep-sea MEG supplies and a delay in the startup of a 700,000 tonne/year MEG plant in Taiwan as other reasons behind the gains.

An official from Taiwanese MEG producer Nan Ya Plastics believed that feedstock prices had a part to play in the higher prices too.

“As long as ethylene prices are so high, we’ll have no choice but to keep pushing for higher MEG prices,” said the Nan Ya official, referring to the feedstock price of MEG, which surged more than $100/tonne over the past two weeks and hit $1,140/tonne CFR northeast Asia last Friday.

As for PTA, spikes in feedstock paraxylene (PX) prices had also boosted prices, said an official from China American Petrochemical Co (Capco), Asia’s top PTA producer.

“If PX keeps rising and hits more than $1,300/tonne as widely expected, I think we’ll have to ask for a PTA price of more than $1,000/tonne [in June],” said the Capco official, referring to the $80-90/tonne jump in spot PX prices between mid-April and mid-May.

By: Salmon Aidan Lee
+65 6780 4359

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