09 February 2011 07:31 [Source: ICB]
Global demand for bottle-grade polyethylene terephthalate is strong but a slew of capacity additions could pressure prices in the long run
Demand for bottle-resin polyethylene terephthalate (PET) is healthy, and several new plants are coming on stream soon to add capacity. However, with demand for PET as a cotton replacement increasing steadily and high feedstock costs, prices will continue to rise.
Higher costs for feedstocks paraxylene (PX) and ethylene glycol (EG) are leading US PET buyers to push for higher prices in February. PET is made from purified terephthalic acid (PTA), which in turn uses PX and monoethylene glycol (MEG) as feedstocks.
January US PET prices were assessed by ICIS at 86.71-88.71 cents/lb ($1,912-1,956/tonne, €1,415-1,447/tonne), and export prices in Asia for bottle-grade PET were seen in the high $1,600s/tonne FOB Korea/China at the end of January.
As such, at the end of January, PET supply was snug and buyers found little availability for pre-buying at January prices.
With global markets tightened by feedstock shortages, there was little availability from import suppliers. Europe is affected by the current force majeure at UK-based BP's PTA plant in Belgium and in the US, PX supply from ExxonMobil's 300,000 tonne/year Beaumont, Texas, facility is on allocation due to "unexpected and prolonged operational issues," a company spokesman said.
However, for PET manufacturers that are very well integrated, "supply is not an issue," says Nicholas Barakat, managing director for Oman-based producer OCTAL.
DEMAND AND CONSOLIDATION
Demand in Central Europe, Eastern Europe, Africa and China is projected to grow at the highest rates, nearing 7-9%/year.
"Asia-Pacific has low rates of per capita consumption of PET resin and therefore the greatest potential for long-term sustainable growth," notes Matt Windt, analyst with US-based consultancy Nexant.
In Asia, China is the predominant consumer of bottle-grade PET, accounting for more than half of the regional consumption.
OCTAL projects the consumption of PET in the Middle East will grow by 47.9% from 2010-2015 to 2.3m tonnes/year.
In developed countries, "demand has suffered due to widespread trends towards weight reductions in shipping where packaging companies have reduced the weight of their containers by over a third," says Windt. The markets in North America and Western Europe have become mature and growth is forecast at close to GDP levels - around 3-3.5%/year.
The UK-based consultancy Tecnon Orbi-Chem reports that in 2009, global virgin PET production totaled 15.1m tonnes. Global PET bottle-grade demand for 2010 is estimated at 16.2m tonnes, says Nexant, with 10-year annual growth forecast at an average of 6%.
"Cotton prices will remain high - that means polyester and raw materials are going to remain high"
Business manager, PET resins, Tecnon OrbiChem
"This is part of a continuing phase of consolidation in the developed world. It has happened more in the US than Europe," says Darrel Collier, Tecnon OrbiChem's business manager for PET resins. The companies doing the buying "have some degree of integration, also producing PTA" or other raw materials for PET.
Wide-scale consolidation might make little sense in Europe because PET facilities there tend to be older and smaller and "are more difficult to consolidate because they are not global scale," as opposed to facilities in the US, says Collier.
In November, Indorama entered into a $420m deal to acquire INVISTA's PET facilities in the US and Mexico. The US facility in Spartanburg, South Carolina, has a capacity of 470,000 tonnes/year and the other, in Queretaro, Mexico, has a capacity of 535,000 tonnes/year.
Indorama will invest $3.8bn by 2014 to ramp up its global PET capacity to 10m tonnes/year from 3.5m tonnes.
At the end of January, DAK Americas closed its $600m deal to acquire Eastman's integrated PET and PTA business in South Carolina, with capacities of 657,000 tonnes/year and 600,000 tonnes/year, respectively.
The acquisition followed DAK Americas' 2007 purchase of Eastman's PET operations in Cosoleacaque, Mexico, and Zarate, Argentina.
In China, where bottle-grade PET growth is in the mid-teens-to-20% range, according to Tecnon OrbiChem, consolidation is not happening. Nexant's Windt notes there is "no discipline" in that market.
"In China, there are new players all the time. Consolidation will occur where the markets are more mature and the growth rates are smaller," says Tecnon's Collier.
Even as the PET manufacturing industry is consolidating in more mature regions, capacity increases are becoming routine around the rest of the globe where demand is greatest.
In January, OCTAL announced that it will add an additional 527,000 tonnes by 2012 to its 400,000 tonnes of PET production.
Russia's Kabardino-Balkariya region is planning a 486,000 tonne/year bottle-grade PET plant, to be run by Clean Polymers Plant, at a cost of rouble 12bn ($396m, €290m). No timeframe was mentioned, however.
Also, Russia's Alco-Nafta expects production to start at its 240,000 tonne/year bottle-grade PET plant in Kaliningrad by the end of 2011.
India's Dhunseri Petrochem and Tea was scheduled to start building a $170m (€125m) 420,000 tonne/year PET bottle-resin plant in Port Said, Egypt, at the end of January. Egypt's political turmoil, however, is making information about the facility's progress and construction hard to come by.
There are several PTA facilities coming on line in Asia in Q3 and Q4. This extra capacity, helpful on one hand to customers, may be a setback to producers. In early January, participants at the 10th Arab International Plastics and Rubber Industry Trade Show and Conference in Dubai said Asian PET bottle-grade chip producers may face difficulties in significantly increasing prices as downstream players will resist such moves despite a stable growth in demand for bottles.
"With more PET bottle-chip capacity expansion projects lining up in the next couple of years, supply is going to outstrip demand and competition [among PET producers] will intensify," said a UAE-based beverage producer on the sidelines.
PET beer bottles may be gaining ground in Eastern Europe but less so in North America. Collier does not see bottle-grade PET having "significant penetration of the beer market."
OCTAL reports progress in wine and beer packaging, including mini-bottles in airlines and hotel mini-bars. "However, this represents a small volume," notes Barakat.
Alcoholic beverages are potential accelerators of bottle-grade PET growth and while OCTAL feels the industry is close to developing bottle-grade PET that feels like glass, there remain technical, consumer and other issues to overcome, Barakat notes.
That PET does not feel like glass is a barrier, says Collier, but there are too many advantages of PET over glass. This will "keep the technology developing so [after] a period of time it will happen," he adds. This is not near-term but once PET replacement of glass starts, "because of its advantages, customers will get used to it," the consultant notes.
Although weight reductions in PET packaging may have affected demand, PET engineering will continue to tackle light-weighting through viscosity modification, says Carole Kluth, senior project manager for UK-based Applied Market Information.
"However, much of the progress with light-weighting in PET bottles has been channeled through the mold designers by reducing resin volume in the preform neck and base," she says.
LAND OF COTTON SUBSTITUTE
"Elevated prices remain and it's hard to see how anything else is going to change that over the next six months," comments Collier.
This is the low-volume season for Northern Hemisphere PET consumption.
"There is a substantial difference between summertime and wintertime PET business. We're going to see demand start picking up [in March and/or April] and we are already tight," primarily due to cotton, which is "very much affecting polyester raw materials," he notes.
Global cotton harvests were almost ruined by bad weather in 2010 and cotton prices are about double from a year ago. "People are substituting polyester but there is only so much polyester," says Collier.
Polyester (fiber and bottle-resin) demand is growing in Asia at 8-10%/year, projects Tecnon OrbiChem. "A huge amount of polyester substitution will not bring down the consumption of cotton enough to impact the pricing [of cotton]. So cotton prices will remain high and that means polyester and polyester raw materials are going to remain high," Collier adds.
Cotton prices are being further driven up by Chinese farmers, who have been hoarding the commodity specifically to drive prices up.
Additional reporting by Dave Barry in Houston, Sergei Blagov in Moscow, and Yu Guo in Singapore
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.
Sample issue >>
My Account/Renew >>
Register for online access >>
|ICIS Top 100 Chemical Companies|
|Download the listing here >>|
Asian Chemical Connections