FocusPoor downstream markets may cap Asia PTA rebound

24 February 2009 09:19  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--The rebound in Asian purified terephthalic acid (PTA) prices may not be sustained as the downstream polyester and textile markets in China have remained very weak, buyers and sellers said on Tuesday.

Renewed buying interests pushed up PTA spot prices to $730-740/tonne (€577-585/tonne) CFR (cost and freight) China on Monday from $720-725/tonne CFR China last Friday, after falling as much as $60/tonne in the week of 16 February.

"We are generally optimistic that prices can recover and we are holding back our offers for March for now," said a trader with Shanghai-based BCF Trading

"We can make some profit with PTA at [$720/tonne CFR China], so we bought some at that level," said a source from Zhenhui Polyester, a filament yarn maker based in Taicang in eastern China.

But downstream markets continued to reel under mounting stocks and poor sales, which will likely constrain the profitability of polyester makers and put a cap on PTA’s rebound, some market participants warned.

"The textile industry is doing badly, spinners and weavers are facing stocks as high as a month, so that is a major problem," said a source from Tian Sheng Group, which owns polyester, spinning and dyeing facilities in eastern China.

Like Tian Sheng, most spinners and weavers preferred not to keep stocks beyond two weeks, otherwise they would be forced to sell at an extremely low price, industry sources said.

"This year, the only reason I am still surviving with so much stocks is because the credit controls had recently been relaxed, and the banks are not chasing me for money," said a source from Jiang Qiao Spinning and Weaving, which owns 200 spindles in eastern China.

Some polyester producers already experiencing slow business fear they will soon be unable to transfer their feedstock costs to the customers, producers said.

Sales against daily output fell as low as 20% last week in key production areas such as Xiaoshan and Shaoxing in eastern China. Most polyester makers only managed to sell about 40-50% of their total output for the whole week, according to ICIS pricing.

"We cannot move our products… some [competitors] had dropped prices in order to sell part of their inventories, but we are still holding on," said a source from Rong Sheng Polyester, a major producer of filament yarns and chips in Xiaoshan.

Prices of most grades of polyester fell by yuan (CNY)100-300/tonne ($15-44/tonne) last week, and  fell a further CNY50-100/tonne on Monday, according to ICIS pricing.

Cash-strapped polyester makers in China were producing about 75% of nameplate capacity, refusing to lower production to demonstrate their creditworthiness to banks.

Some market watchers also pointed to additional PTA capacities coming on stream, as well as the desire of most PTA makers to resume full operations, which could exert downward pressure on prices.

"We will definitely like to produce more, but we cannot deny that (shortage of feedstock) paraxylene (PX) is an issue," said a source from Sinopec, an integrated producer and owner of Yangzi Petrochemical in eastern China.

"Now, it’s because PX is not enough, that we see less PTA; if most PX producers resume full operating rates by March, we may see more PTA coming out as well," said a source from Hualian Sunshine Petrochemical, a Chinese PTA supplier.

Another trader with Macau-based Winsway Trading said PTA sellers could be caught in the centre if the PX and PTA supply increased amidst collapsing demand for the PTA.

($1 = €0.79 , $1 = CNY6.84)

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