OUTLOOK’ 09: Asian PTA margins could come under pressure

02 January 2009 06:30  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--The consolidation of the purified terephthalic acid (PTA) market has resulted in better operating profits for makers in Asia, but it remains to be seen if this situation continues into 2009 due to uncertainties surrounding new supplies in China and the global economic downturn, sources said.

“Now, we don’t see so much PTA floating around, it’s a refreshing change,” said an official from Hualian Sunshine Petrochemical, a Chinese PTA producer which had suffered badly through 2006 to 2008 due to an oversupply in PTA capacity in the region.

For more than two years, PTA producers were faced with tight supplies of feedstock paraxylene (PX), an overcapacity situation, as well as stiff regional competition that forced the exit of some players from the overcrowded market.

Regional producers such as Polyprima Karyareksa and Pertamina from Indonesia were said to have ceased exports. Deep-sea supplies into China from Russia, Turkey and even Pakistan and India had also dried up given improved demand in their own markets.

However, market players were wary about the new PTA capacities to be added in 2009, but these were expected to be less than the aggressive additions seen in 2006 and 2007, noted market players.

As many as three new PTA lines could start up in China by mid 2009, and another one each in Taiwan and India. Two of the Chinese ones – Hanbang Petrochemical and Chongqing Fuling Petrochemical – could possibly face delays, sources added.

Despite the additional capacities expected, PTA supplies are still expected to be capped by the shortage of feedstock PX in the market between the first and second quarter of 2009, sources said.

“Aromatics producers had cut back on production and so far, benzene is still very bad and we expect PX to remain tight, so PTA makers cannot operate full to supply the market fully,” said a trader with Japan’s Itochu Corp.

The relative health of the downstream polyester and textile sectors was also playing a key role in aiding the return to better days for PTA makers, sources said.

“We want to produce, at least until February, so demand for PTA is naturally strong,” said a source from Tong Kun group, a major polyester producer in China.

Although the Chinese textile industry could deteriorate in 2009 due to dwindling demand caused by the global economic slowdown, the impact seemed to have been cushioned by a series of pro-market macroeconomic policy changes by the Chinese government in recent months.

Hence, some optimists were betting that as long as the downstream markets keep to "normal" operating levels, PTA producers could find ready buyers for their products and margins could be maintained.

“Of course, we’re not celebrating yet and although losses could be contained, our margins won’t be fantastic either,” said a source from Korea’s Samsung Petrochemical Co, a leading PTA producer.

PTA producers outside China were also cognisant of the fact that as most new capacities coming on-stream in 2009 would be in China, imports could shrink further.

“New trading policies, such as the end of tariffs for southeast Asian imports could encourage more Thai PTA to come to China, but the bulk of China’s PTA imports come from Taiwan and Korea, which continue to pay normal tariffs,” said a Shanghai-based trader with Oriental Trading.

These Taiwanese and Korean sellers could be competing with the lower operating costs of their Chinese counterparts, and “Chinese sellers can easily undercut the competition given their ruthlessness, so I don’t think foreign PTA producers would have an easy time” next year, said the trader.

This, together with the fundamental shortage of PX in the market and the general bearishness as a result of the global recession and an expected reduction in energy values in 2009, could cap operating margins for PTA producers, said market observers.

“We’re feeling the stones as we cross the river; I cannot say we’ll definitely do well, I cannot say we’ll definitely sink, but I can say we’ll emerge stronger if we survive… and so far, we’re still surviving,” said an official from Japan’s Mitsubishi Chemical, a major PTA maker.

For more on PTA visit ICIS chemical intelligence

Please visit the complete ICIS plants and projects database

To discuss issues facing the chemical industry go to ICIS connect

By: Salmon Aidan Lee
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly