US PET contracts to rise in April as demand returns

07 April 2010 18:10  [Source: ICIS news]

HOUSTON (ICIS news)--Seasonal demand recovery is apparent in US polyethylene terephthalate (PET) as initial US April contracts settled higher by around half of the nominated increment, buyers and sellers said on Wednesday.

Resin orders from bottle preformers and converters were steadily increasing as downstream players try to get a jump on what could be a 4-5 month stretch of climbing prices, sources said.

“This is the traditional run-up time for demand and pricing, and I’m seeing some of that starting,” a US buyer said.

A producer agreed, “The market has picked up [owing to] a combination of low inventory levels, improving economy and import displacement.”

US PET producers nominated 4 cent/lb ($88/tonne, €66/tonne) hikes on April resin, but both buyers and sellers now say the largest anticipated hike is 3 cents/lb. One producer held firm on its 4-cent hike, saying it had received no lower competitive arguments from clients or competition.

But most market players said aggressive pricing among producers, a class that increased to seven from six last year, has driven hikes on initial April contracts to within a quarter of April’s estimated change in cash cost, or 1.5-2.0 cents/lb over the March contract.

These contracts are mainly held by small-to-medium sized buyers of less than 2,000 tonnes/month, a seller said.

The remaining 0.3-0.8 cents/lb would pad sellers’ margins and bring them to within 2-3 cents/lb under November 2009 levels, sources said.

PET feedstocks paraxylene (PX) and ethylene glycol (EG) are gaining less altitude in April than predicted, as 2 cent/lb hikes have passed for April EG and US PX is expected to follow the rollover seen in Asia.

Another producer said the April increase was never about raw materials, but rather recovery of margins lost to rising costs and low demand between November and February.

Indorama’s entry into US PET, with two production lines each capable of more than 200,000 tonnes/year, has thrown the supply balance into disorder, sources said.

While the return of seasonal demand will mean higher production rates, the associated cost advantage in making more resin is now capped by overcapacity.

The potential supply imbalance is worsened by a PET build in Canada that is expected to be complete in late 2010.

March US PET contracts for small-to-medium sized buyers were in the low 70s cents/lb DEL (delivered), while US exports were heard as low as 57 cents/lb FOB (free on board) east coast, indicative of sellers’ desire to increase rates without lengthening standing inventory, sources said.

North American PET producers include Dak, Eastman, Indorama, Invista, Mossi & Ghisolfi, Nanya and Wellman.

($1 = €0.75)

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By: Landon Feller
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