OUTLOOK' 11: Polyester capacity increase to support Asia PTA

03 January 2011 09:46  [Source: ICIS news]

By Becky Zhang

SINGAPORE (ICIS)--Asia purified terephthalic acid (PTA) prices are poised to hit new highs in 2011 due to significant capacity expansion in the downstream polyester industry in the key markets of China and India, according to industry sources.

However, this expansion would in turn intensify competition and squeeze margins in the polyester sector, the sources added.

PTA is primarily used in polyester production, with polyester fibre and yarn consuming over 75% of Asia's PTA output.

Asia spot PTA prices surged to a 15-year high of $1,150-1,270/tonne (€863-953/tonne) CFR (cost & freight) China Main Port (CMP) in the week ended 12 November 2010, driven by tight supply, strong polyester sales, skyrocketing PTA futures and the anticipation of accelerating inflation in China.

Prices had subsequently experienced a rapid downward correction, but rebounded to $1,180-1,215/tonne CFR CMP during the week ended 24 December 2010, on the back of an optimistic outlook for 2011, according to ICIS.

“Capacity expansions along the polyester chain are not at the same speed,” said a major Japanese trader.

A total of 4.7m tonnes/year of new poly-condensation capacity in China was expected to become operational this year, which would bring the total Chinese poly-condensation capacity to 33.5m tonnes/year, based on an ICIS study conducted in early December 2010. 

India, the second largest polyester production hub in Asia, was expected to add around 500,000 tonnes/year of new polyester capacity in 2011, said a major Indian PTA producer. The country’s existing capacity stood at around 4.3m tonnes/year.

By contrast, there were only three new PTA plants and one expansion project, with a total new capacity of 3.5m tonnes/year, expected to be added next year in Asia - all located in China - according to ICIS.

China’s Hanbang Petrochemical has postponed the start up of its new 600,000 tonne/year PTA plant at Jiangyin in China’s eastern Jiangsu province from late December to January 2011, because of some mechanical problems, a source close to the company said.

Two other new plants, Chinese Zhejiang Yisheng Petrochemical’s 1.5m tonne/year No 3 line and Jiangsu Sanfangxiang Group’s 900,000 tonne/year unit, would likely to be put on stream in the second and third quarter of 2011, respectively, said company officials.

Separately, China’s Yisheng Dahua Petrochemical has planned to de-bottleneck its 1.5m tonne/year PTA plant to 2m tonnes/year by 2011.

One tonne of polyester products consumes 0.86 tonnes of PTA.

This would mean a supply gap of nearly 1m tonnes/year in 2011, regardless of the start-up schedule.

“That’s why we are in a weaker position to negotiate next years’ contracts [with PTA suppliers],” a Jiangsu-based polyester maker said.

“Tight feedstock PTA supply will limit polyester production, and meanwhile add on cost pressure to the polyester industry,” said a Shanghai-based PTA producer.

In 2010, Asian PTA plants operated at full tilt - except planned or unplanned downtimes - resulting in an overall operating rate as high as 90%, according to ICIS data.

The average PTA margin was high at around $150/tonne in 2010, whereas the overall margins of polyester yarn and fibre had expanded to yuan (CNY) 500-1,000/tonne ($76-152/tonne) throughout the whole year, the highest during the past five years.

“Traders won’t let go the opportunity to speculate prices in the new year, not to mention the strong inflation trend in the Chinese financial market,” said Kuang Bo, an analyst with China’s Yongan Futures Broker.

While PTA producers could continue to enjoy high profits next year, polyester makers might face challenges along with fast expansion and tight feedstock supplies, Kuang noted.

“There is no doubt that 2011 will see continued strong demand for polyester products, but we are not sure whether we can still make such handsome margins like 2010,” said a major Zhejiang-based polyester producer.

The producer listed a number of reasons for the uncertain outlook for polyster margins in China this year, including possible lower cotton prices because of cultivation on a larger area, fierce price competition among polyester makers, and reduced demand of the material under rising inflation.

However, in 2010, the soaring prices of cotton on the ICE futures, which rose by 75% from January to December 2010 amid tight supplies as a result of poor weather conditions, had opened up a speculative window for its primary substitute - polyester fibres.

($1 = €0.75 / $1 = CNY6.59)

To discuss issues facing the chemical industry, go to ICIS connect
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Becky Zhang
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