OUTLOOK ’11: Asia PET prices seen firmer on raw material costs

05 January 2011 07:23  [Source: ICIS news]

By Yu Guo

SINGAPORE (ICIS)--Asian polyethylene terephthalate (PET) bottle-grade chip prices, on an uptrend since the last quarter, are expected to rise further this year on higher raw material costs with demand expected to remain strong, according to industry players.

Feedstock monoethylene glycol (MEG) values were assessed at $1,075-1,090/tonne (€806-818/tonne) CFR (cost & freight) China on 24 December 2010, compared to $860-870/tonne in the same period a year earlier.

Similarly, feedstock purified terephthalic acid (PTA) prices were at a 15 year high of $1,180-1,215/tonne CFR China on 24 December 2010, ICIS data showed.

Both upstream sectors were expected to remain firm this year because of tight supply and healthy downstream demand.

“Raw material prices will remain strong in the coming year judging by the market fundamentals,” said a major UAE-based producer.

PET bottle chip prices had also been on an uptrend since the fourth quarter of 2010 and peaked at a historical high of $1,650/tonne FOB (free on board) Korea in the second week of November, in tandem with the escalating upstream PTA and MEG values.

Despite having stabilised at around the high $1,400s/tonne FOB Korea, spot PET bottle chip prices are still deemed as too high by end-users and converters, especially during the current traditional lull in the northern hemisphere.

“Producers foresee more [pre-Chinese Lunar New Year] buying activities, starting from January, because nothing happened in November and December [2010] when buyers should have started stocking up,” said a source from major southeast Asian producer Indorama.

“We do expect more demand to surface in the coming months, after the market returns from the year-end festivity, given the relatively low inventory levels reported among downstream players,” said a major Chinese producer.

Downstream converters and bottlers had been purchasing on a need-to basis since the unexpected climb of PET bottle chip prices from October 2010 onwards, the producer added.

Market players also expected higher PET bottle chip prices in the near term on the back of the prevailing firm feedstock values.

“Bolstered by growing demand, PET chip prices will follow rising upstream costs closely in order to maintain their margins,” said another major producer based in Oman.

Although producers said the 2011 market would be too dynamic for any of them to give an accurate prediction, some agreed the average annual bottle chip prices in 2011 would be around $100-150/tonne higher compared to those in 2010.

The yearly average spot prices for PET bottle-grade chips were recorded at around $1,280/tonne FOB Korea in 2010, according to ICIS data.

Converters told ICIS they had already proposed to adjust their base prices up by at least $100/tonne for PET components in their contract formula for this year, in anticipation of higher raw material prices.

However, traders were more concerned over profits, in view of the rising feedstock costs.

“PET chips prices will definitely be higher in tandem with firm PTA and MEG values, the problem will be profits in this already competitive market,” said a trader.

A producer in southeast Asia said there was no perfect substitution [to bottle chips] immediately available to downstream beverage producers, because it took time to change filling lines - should anyone wish to switch to aluminium cans or glass bottles.

“Bottle chip should see demand growing at a rate of around 15% in the next couple of years for markets such as the Middle East and Latin America,” the UAE-based producer added.

($1 = €0.75)

For more information on PET, visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Yu Guo
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