FocusAsia PTA sheds $360/t, at 10-month low

17 September 2008 05:36  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Purified terephthalic acid (PTA) prices in Asia have fallen to ten-month lows after dropping $360/tonne this week and the freefall looks set to continue due to tumbling feedstock costs and weak demand, buyers and sellers said on Wednesday.

PTA shed $360/tonne to $820-830/tonne CFR (cost and freight) China this week from $1,190/tonne in early July, due to lack of both upstream and downstream support, they added.

"You can consider this a crash, much worse than what we saw in 2006 and 2007," said a trader based in Macau.

"This is terrible, there’s no more hope for traders who had held on to the cargoes just a few months ago, we’re all making losses," said a Chinese trader with Xiamen International Trading.

PTA prices were last seen falling into three-digit territory in May 2008.

Feedstock paraxylene (PX) costs had fallen sharply, taking the cue from crude prices. This week, PX declined to $1,080-1,095/tonne CFR Taiwan in the spot market, down from the year’s peak of $1,705/tonne in May

Crude oil futures at the New York Mercantile Exchange have sharply retreated from the record high of $147.27/bbl on 11 July, hammering the broader aromatics markets on the way down. At 10:56 local time (02:56 GMT), crude was trading at $94.47/bbl.

"Crude oil prices falling like that, we cannot expect the PX market to be good at all, so what had brought [PX] prices up in the earlier half of the year, it’d have to bring it down," said the procurement manager of a major PTA producer.

"It’s not only in Asia, in the US and in Europe, in benzene, toluene and PX, we see prices freefalling, so tell me, how can the downstream be strong," said a veteran aromatics and olefins trader based in Singapore.

But some market observers believed that PTA had fallen mainly because of the poor conditions in the downstream polyester, polyethylene terephthalate (PET) and textile sectors.

"Since last year, our customers [have been] tell[ing] us that they cannot export much, as orders for [made-in-China] garments, textile products all fell," said the deputy general manager of Heng Li Polyester, a major polyester filament yarn producer in China’s Jiangsu province.

The deputy general manager of Shaoxing Cifu, another leading polyester filament yarn maker that also produces film-grade PET, concurred, saying: "Every month, my sales managers tell me they have fewer and fewer customers to sell to, and we have no choice but to cut our prices in order for sales to move, so naturally I’d resist accept higher PTA prices."

"Based on current PTA [and monoethylene glycol] prices, we can make money, yes, but remember, we’re using feedstocks from about a month ago and selling our products at current prices. We cannot make ends meet," said the procurement manager for Dragon Special Resins, a bottle-grade PET maker in southern Fujian province in China.

"The PTA market is in overcapacity, and it seems that even if PTA producers cut back on operating rates, it’s still useless," said an official from Ningbo Mitsubishi Chemical (NMC), a PTA producer based in the eastern Chinese province of Zhejiang.

"No choice, we’d just have to produce when we can sell, and when margins are gone and we’ve too high product inventories, we’d just have to cut back on production, not that it would help much in pricing though," said a senior official from NMC’s local rival, Yisheng Petrochemical, which is also based in Ningbo.

The procurement manager of Xiaoshan Longda Polyester, a polyester filament yarn maker in Zhejiang said, "it’s something we need to face, that nobody in this chain is making much of a money, or even making losses, and the fundamentals are just not right."

The downtrend could persist unless the PTA overcapacity problem is rectified and the overcapacity in the Chinese polyester industry becomes less severe, said a market veteran with 20 years experience in the industry.

He added that PX sellers must also recognise that costs could not be transferred as before to PTA producers

"Now, we’re seeing $800 in terms of pricing, if we short, if many more people short the market, then I think maybe $700 is very possible," said another Macau-based trader.

With no short-term solution to overcapacity problems, coupled with credit difficulties in China, most PTA players were readying themselves to soon witness the lowest price since May 2005.

For more on PX, PTA visit ICIS chemical intelligence 
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By: Salmon Aidan Lee
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