FocusPTA sheds $140/tonne in a month, rebound may not materialise

04 September 2009 06:44  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Purified terephthalic acid (PTA) prices in Asia have fallen by as much as $140/tonne (€98/tonne) in the past month with future looking bearish as well due to weakening downstream market conditions, buyers and sellers said on Friday.

From $970-980/tonne CFR (cost and freight) China in early August, prices of PTA imported into the key Chinese market had tumbled to around $830/tonne CFR CMP (China Main Port) earlier this week, according to ICIS pricing.

“Demand had stagnated suddenly, buying among downstream players had slowed significantly,” said a trader with BCF Trading, a Korean-owned trading house based in Shanghai.

Polyester producers said their sales had dipped over the past month, and product inventories had risen rapidly to around 15-20 days’ worth of stocks.

“In July, we’d an average of about 10 days’ worth of stocks, often times even less, so we’ve no choice at times to dump our goods at low prices,” said a source from Xiaoshan Xiang  Sheng Polyester, a mid-sized producer of polyester filament yarns and chips in eastern China.

Some polyester makers were unwilling to dump their cargoes, and thus reported even higher product inventories.

“This is a major issue to us, as we’ve to decide whether to keep producing and thus have even more stocks, or cut back on production,” said a senior official from Jiangsu Sheng Hong Group, a major producer of polyester products at Wujiang in eastern China.

Traders in general believed that even if downstream players had yet to cut back on production, they were already extremely cautious with their feedstock procurements.

A recent dive in futures pricing at the Zhengzhou commodity exchange – some days saw the losses hitting the maximum of 5% compared to the previous day – also suggested that the mood had recently turned extremely bearish.

“Naturally, you see prices of [filament yarns] falling, and we’re talking about using feedstocks bought about three or four weeks ago at such prices, and we’re selling at these low prices now, it’s loss-making,” said the deputy general manager of Shaoxing Cifu Polyester, another major maker of polyester filament yarns in eastern China.

To most market participants, the almost unbroken uptrend for PTA pricing since February had essentially ended in end-August, and prices could head lower in coming weeks amid a growing string of bearish factors.

Chief among these bearish factors is the tightening credit regime in China, where August loans by banks plummeted after more than seven months of explosive growth.

“Most of us believe that the price gains in the past few months, even as exports [of finished products] were supposed to be bad and the rest of the world was suffering from a recession, was mainly due to the easy availability of credit,” said a senior trader with Jinshan Associated Trading in Shanghai.

“In fact, the downstream [polyester] plants, many of them keep running at high rates so that they can keep getting the loans,” said the trader, explaining the strong off take of PTA among polyester makers between February and July.

“Previously, it was because there was money; now, there’s less money, of course demand would become weak and the fundamentals would show,” a source from Taiwanese PTA producer Tuntex Petrochemical said.

Indeed, most players pointed to the fact that the PTA market in Asia was oversupplied, and the excess capacity could intensify in coming months as new PTA plants start up in India and China.

“Actually, the whole [polyester] chain is going to be oversupplied, not only PTA and polyesters, which are already oversupplied,” said a Macanese trader with Grandpec Trading.

He was referring to the looming over capacity of paraxylene (PX) in Asia, which could result in an oversupply of the feedstock for PTA come October or November.

“Production cutbacks would be a way of life, it’s a matter of who cuts back first and who does so faster,” said a trader with Samyang Trading, a Korean trading house.

But in the past two days, the falling prices seemed to have hit a bottom and signs of a possible rebound could emerge, market participants said.

As of mid-day on Friday, prices stood around $840/tonne CFR China, a tad higher than the nadir of the week.

“If you ask me if this means prices could rebound, I’m not sure,” said a Shanghai-based trader with Oriental Holdings.

To this trader, crude oil prices had fallen from the year’s high and so had PX prices, which ebbed to $920-950/tonne CFR Taiwan Thursday, from $1,120-1,130/tonne CFR Taiwan in early August.

“The upstream sectors aren’t doing well, and we see the downstream segments performing poorly too, so I’m also pessimistic,” said the deputy general manager of Shaoxing Flame Retardant Fabric Manufacturing, a textile maker who had recently started up its own polycondensation facility in eastern China.

($1 = €0.70)

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By: Salmon Aidan Lee
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