31 December 2007 03:30 [Source: ICIS news]
By Hong Chou Hui
Feedstock monoethylene glycol (MEG) surged to a record high spot price of $1,690/tonne (€1,149/tonne) CFR (cost and freight) China Main Port (CMP) in mid-November on tight supply triggered by production problems plaguing MEG producers.
Coupled with crude futures which hit an all-time high of $99/bbl on bullish sentiment and a weakening dollar, the polyethylene terephthalate (PET) chip and downstream polyester fibres and yarn sectors have gained in tandem with feedstock prices over the last quarter of 2007.
The MEG shortage is expected to be resolved by the first quarter, when MEG major Saudi Basic Industries Corp (SABIC) resumes full production while a possible cut in US interest rates in January may trigger off another run at the psychologically significant $100/bbl mark by crude oil traders.
All this could result in corresponding gains for the polyester industry as PET chip and polyester fibres and yarn producers would seek price increases to protect their margins.
Market sources, however, warned of a bumpy road ahead for polyester producers after successive months of price gains in November and December.
“Consumers are reluctant to accept any more price increases because the inflation throughout
“The effect is making itself felt with garment manufacturers facing lower sales while PET bottle chip end-users making bottled drinks can’t pass their costs on to their consumers."
He added that weather anomalies such as a warmer winter in southern
The Chinese government raised the cash reserve requirement ratio for
This has led to a credit crunch in
As a result, some Chinese PET chip and downstream polyester fibres and yarn makers resorted to fire sales to raise hard currency and liquidate excess inventory, a move that earned the ire of non-Chinese polyester sellers this year.
“We need to protect our margins because this is the peak season and sales will taper off by mid-January next year. It’s no wonder we’re having problems selling because the Chinese are moving in the opposite direction when everyone else is hiking their prices,” said a South Korean PET bottle chip producer.
With the possibility of a recession looming over the
This could trigger a collapse in prices of PET chips and polyester fibres and yarns.
PET bottle chips are used to manufacture bottles for consumer goods such as drinking water and cooking oil. Other major PET producers in
Polyester fibres are used as filling for comforters and winter jackets while polyester yarns are utilised to make clothes.
($1 = €0.68)
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