FocusAsia PTA prices to test 4-digit territory

28 February 2008 03:15  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Purified terephthalic acid (PTA) spot prices in China - at a seven-month high due to short supply and downstream demand - are poised to test four-digit territory for the first time since September 2006, buyers and sellers said on Thursday.

They have crossed the psychologically-important $900/tonne (€594/tonne) CFR (cost and freight) China mark. As of Wednesday, spot prices were pegged at $910-915/tonne, with bids edging higher with each passing day.

The last deal confirmed was at $905/tonne on Monday for bonded material, and offers had all but been withdrawn while selling indications were no lower than $930/tonne.

“This is really morale-boosting, as anybody familiar with the [PTA] market will know that $900 is a special number for the past few years, as most times we’ve almost always failed to pass this mark without falling back sharply within a few weeks,” a trader with Ningbo Cixi Import & Export said.

PTA spot prices have gone higher than $900/tonne and stayed above that level for more than a month only twice in the past five years; once was in July 2006 and the more recent time was April last year.

For these five years, prices had been regularly in the high $800s.

“Now, the market dynamics support the price rise, unlike the oversupply in the past two years,” said a trader with Samsung Corp. He was referring to the overcapacity in the market, which had seen 13 new PTA lines starting up since 2006.

“Previously, oversupply meant that prices could almost never be high. So what we see now is a very good sign, and we hope it can sustain,” said a producer in Taiwan with several units located in various parts of the island.

“The main reason behind this price gain is because many producers cut back in the past few months on [squeezed] margins, and also because the downstream customers are [in need of] the PTA,” an official from Samsung Petrochemical Co of Korea said.

Feedstock paraxylene costs also tracked gains in crude and naphtha futures in recent weeks, and hit as high as $1,210/tonne CFR Taiwan by yesterday, much higher than $1,110/tonne in late January.

“The combination of the upstream pull, and the downstream push helped boost PTA prices,” said a procurement official with Zhejiang Lianda Polyester, a mid-size polyester producer in Xiaoshan in China.

Some buyers also attributed the price gains to the temporary easing of credit tightness in China.

“After the Chinese New Year, banks have more cash at hand and were more willing to grant credit to businesses, so speculation increased and that helped to bolster PTA prices,” said a Jiangsu-based trader known for his speculative activities.

The expectations that the post-Chinese New Year boom in the textile and polyester sectors would come by the tail-end of February, and extend to March, said this trader.

“So it was no surprise at all that given the earlier cutbacks in PTA production, which in turn helped reduce spot availability now, we’re seeing more traders taking long positions and there’d been almost no offers in the past few days,” said this Jiangsu trader.

“Now, those with cargoes are in no hurry to sell; they are aiming for at least $920-930,” said an official from Hangzhou Dao Yuan, a polyester producer based in Xiaoshan in eastern China who is also notorious for his speculative activities.

With the downstream spinning and weaving sector rapidly resuming operations after the New Year holidays and earlier stoppages due to the harsh winter, and with expectations of more of made-in-China garments flowing in ahead of the spring edition of the Canton Trade Fair in late April, polyester makers are keeping operations high and seemed more than willing to buy at those levels and push PTA prices even higher towards four-digit territory.

($1 = €0.66)

By: Salmon Aidan Lee
+65 6780 4359

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