OUTLOOK '11: Europe PET to stay firm on feedstocks, tight supply

31 December 2010 10:34  [Source: ICIS news]

By Caroline Murray

PET a sellers market in 2011?VALENCIA, Spain (ICIS)--European polyethylene terephthalate (PET) will remain tight and prices will stay firm through much of 2011 because of bullish feedstocks and limited availability, according to industry sources.

"Next year will be a sellers’ market," a PET manufacturer and buyer of upstream monoethylene glycol (MEG) and purified terephthalic acid (PTA) said.

Bottle-grade PET values in Europe have increased by over 26%, from lows of €1,050/tonne ($1,400/tonne) in August to above €1,300/tonne FD (free delivered) Europe in December. Hikes were expected to continue into 2011.

Domestic PET supply was limited. This was because of earlier plant consolidation as well as uncompetitive imports. Asian customers substituting high-priced cotton for polyester PET resulted in less material flowing into Europe.

The lure of strong demand and high prices in Asia was diverting upstream MEG away from Europe, a net importer. The contract value of MEG spiked by €220/tonne from €755/tonne FD NWE (northwest Europe) in August to €975/tonne December 2010.

Ethylene, the raw material for MEG was at a two-year high in January and MEG producers were seeking to claw this back from customers.

The first half of 2011 will be peppered with planned MEG turnarounds in Europe and the Middle East. Buyers and sellers alike are expecting the market to be tight or precariously balanced during this time.

"By the second half of the year I expect better availability but by quarter three [downstream] anti-freeze demand kicks in again and the prices will go up again," according to an MEG trader.

PTA supply does not flow freely and prices have been jumping up in line with its raw material, paraxylene (PX).

The €700s/tonne dominated PTA in 2010 but by November prices had surpassed €800/tonne and continued to show signs of continued increases.

"The [PTA] market was expected to be long in 2010 but demand is good and imports are not competitive," a buyer of PTA explained.

Despite new PTA capacity coming up in 2011, "the market will continue to be better for producers", the PTA buyer said.

An overhang of PX production problems in the fourth quarter will make for a snug start to 2011, according to a producer. PX plants will run in accordance with demand, so it only takes one hiccup for availability to tighten further.

PX prices jumped from €805/tonne to a surprising €1,030/tonne in the fourth quarter alone.

Price-wise, Asia will continue to drive the PX market. As the manufacture of European PET is so dependent on imports, this statement is true across the chain.

A fibres and filaments producer summed it up by saying: "Europe is a victim of what is going to happen in Asia".

Poor harvests have led to a short supply of cotton. This remains an underlying factor for PET going into 2011, as consumers, particularly in Asia, pull on polyester supplies instead.

Exchange rates will carry on playing a crucial role in these global commodity markets.

"I expect a volatile year... There will be more price movement than in 2010 because of the exchange rate and because of what China prices are doing," a supplier of MEG explained.

All this, however, is set against a backdrop of a poor economic situation, supported in 2010 by considerable stimulus packages across the world.

"There is less money available...families, consumers could be worse off in 2011 than they were in 2010," a PET producer said.

The onset of better cotton harvests could result in customers refusing to pay the high prices. This though, was unlikely to occur before the second half of the year, sources said.

"How long can the polyester chain really stand the increases? Fibre producers will cut production," a PET producer said, echoing speculation from other buyers and sellers.

($1 = €0.75)

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By: Caroline Murray
44208 652 3214

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