March to be pivotal month for US PET as sellers seek margins

25 February 2010 20:22  [Source: ICIS news]

HOUSTON (ICIS news)--Facing slow demand recovery, the ability of US polyethylene terephthalate (PET) producers to hold steady prices in March may determine who survives 2010, a supplier said on Thursday.

“March will be a fork in the road. We will see raw material [prices] roll over or fall before possibly going higher in April,” the seller said.

But flat-to-lower raw materials such as paraxylene (PX) will not automatically justify lower PET values in March.

According to producers and market observers, the problem with passing on lower costs to PET buyers is that producers have not fully recovered lost margins stretching back to November.

“It was not a little bit, it was a lot of margin,” a PET seller said.

The traditional price cycle that brings lower PET values in the northern winter months was not seen this year. Although third- and fourth-quarter demand weakened across major sectors, upward price pressure kept PET values aloft during this period.

The upper end of US PET contract prices were assessed at $1,570-1,636/tonne (€1,162-1,211/tonne) during February, following four months of consecutive price hikes, according to global chemical market intelligence service ICIS pricing.

PET producers said success in 2010 will require stable-to-higher pricing through the second-quarter, because sellers can no longer depend on strong demand from the carbonated soft drink (CSD) sector.

US PET growth has long hinged on a robust single-serve beverage market, primarily via convenience store sales, which have taken a 20-25% hit since the onset of a prolonged economic recession, the PET seller said.

Sellers not only face slow recovery amid uncertain demand from the cornerstone CSD sector, but the US market must also absorb rising supply from new production in Alabama and Canada this year.

However, the current profitability of some US producers is so low that a drop in March PET values could expedite a US plant closure, according to producers and market observers.

Cash reserves are low and there is no longer room to cover a month of bad margins, a US seller said.

“It will be one of those things where your accountant calls up one day and says we can’t afford to run that plant anymore,” the seller said.

US PET producers include Dak Americas, Eastman, Indorama, Invista, Mossi & Ghisolfi (M&G), Nanya and Wellman.

($1 = €0.74)

For more on PET visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Landon Feller
+1 713 525 2653

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