OUTLOOK '08: US PET tightness to continue

28 December 2007 21:00  [Source: ICIS news]

By Landon Feller

HOUSTON (ICIS news)--Most US polyethylene terephthalate (PET) producers can expect continued tightness with further mergers and acquisitions throughout 2008, with new capacity and expansions in North America not changing the supply picture until 2009.

"2008 may likely be a tighter year before expansions come on line in late 2009," one US producer said.

However, others see producers continuing the struggle. "The short-term PET outlook is not very good," said Robert Bauman, vice-president of polymers for Nexant, a consulting group based in Houston.

"To stay profitable, many producers that intend to stay in PET are buying or building new assets or acquiring new technology to lower overhead costs," Bauman said.

Market sources have speculated that international producer Wellman, which was delisted from the NYSE in December, may divest its US PET assets in 2008.

"Wellman may not survive 2008," a market participant who closely follows the company said. "Its business has not been profitable since 2001 and... there is plenty of buying interest out there."

The average price of bottle-grade PET resin is expected to continue an upward price trend in 2008 and into 2009, as participants predict that PET markets will remain tight to balanced through mid-2009.

PET resin prices increased by about 9% in 2007, according to global chemical market intelligence service ICIS pricing.

Among the expanding PET suppliers are Thai firm Indorama Polymers and Italy-based Mossi & Ghisolfi. Each announced in 2007 plans to build new US PET assets.

Both producers anticipate a growing regional supply shortage in 2008 and into 2009. The rising demand could be met by the more than 1.2m tonnes/year of combined new capacity that those companies intend to bring to the US market in 2009-2010.

Eastman Chemical will remain the technological frontrunner in 2008. The company's proprietary PET technology, IntegRex, has been billed as an industry-changing process that lowers cost and increases efficiency of PET production.

By upgrading its US facilities, Eastman will slowly phase out most of the old technology through 2008.

It then plans to debottleneck its plants so that, by the first quarter of 2009, the company's total North American PET capacity will be 800,000 tonnes/year, an Eastman source said, compared with 675,000 tonnes/year at the end of 2007.

Eastman will keep options open with regard to licensing IntegRex to other producers, a prospect that has competitors eager to negotiate.

Notwithstanding these expansions, investments in new PET capacity in developed nations is limited to a few companies, analysts note. Much of the polyester fibres business is seen decreasing in profitability due to market maturation and escalating feedstock costs.

Those factors, along with a strong likelihood of sustained higher oil prices and a potential weakening of US end-use markets, offer a rather bleak outlook for the plastic resins business in the US.

However, the growth potential of Latin American markets is still strong.

"Latin America, particularly Brazil, is set for a good year," said one Brazilian participant. "Demand is strong and growing. The only concern is to what extent the cloud of US financial and housing market troubles will affect Latin American economies."

US producers - with the exception of Eastman, which has a non-competitive agreement with local producer DAK - could see new opportunities for trade with Argentina, sources have said.

Colombia and neighbouring markets may also open up further to US imports, as Colombia's sole producer, Enka, appears increasingly vulnerable to competition as its resin pricing offers soar amid unsustainable production costs.

Enka may be further compromised due to its relatively small 35,000 tonne/year capacity and the weakening effectiveness of a 15% import protection fee it has thus far enjoyed.

In intermediate chemicals, the trend towards integrated PET production facilities will mean further phasing out of dimethyl terephthalate (DMT) as a PET feedstock during 2008. Producers around the globe have begun taken steps to move away from what one supplier calls the "last generation" feedstock.

A globally tight supply situation in PET feedstock monoethylene glycol (MEG) is expected to ease in the latter part of the first quarter of 2008 as downed plants, which experienced unplanned outages during the second half of 2007, are brought back on line.

By: Landon Feller
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