FocusUS PET producers target further price increases for April

08 April 2011 21:32  [Source: ICIS news]

A targetBy Sam Weatherlake

HOUSTON (ICIS)--US polyethylene terephthalate (PET) producers are seeking price increases for April, but whether these initiatives are achievable remains doubtful, market participants said on Friday.

Two producers so far have announced that they will target PET price increases of 5 cents/lb ($110/tonne, €77/tonne) for April. Domestic prices for bottle grade PET are currently assessed by ICIS at 99.50-101.50 cents/lb DEL (delivered).

However, one said its April initiative really will be determined by feedstock price increases, and that it wants to see margin improvement of 2 cents/lb on top of any raw-material hikes.

The producer said that while Mexican buyers could well end up paying an additional 5 cents/lb in April, “we probably won’t get the whole 5 [cent/lb increase] in the US”.

The key factor is likely to be the April paraxylene (PX) contract price, a portion of which is passed on to the monthly contract price for purified terephthalic acid (PTA), the immediate precursor to PET.

The April PX Asia Contract Price (ACP) was agreed at $1,690/tonne CFR (cost and freight) Asia, up $35/tonne from the March price.

Some sources in the US PX market suggested the April contract could settle as high as 90 cents/lb DEL ), while others said the price could reach the upper 80s cents/lb DEL.

US PX monthly contract price movement has remained within $50/tonne of the ACP trend for more than a year.

PET producers are emphasising the need to restore their margins, which have been severely eroded in recent months, citing tight supply ahead of the peak summer season for beverage consumption.

Last week, Mossi & Ghisolfi (M&G) declared force majeure (FM) on PET production at its Apple Grove plant in West Virginia, although market sources said only a portion of the plant’s output was affected.

M&G’s facility in Apple Grove has a PET capacity of 250,000 tonnes/year, according to ICIS plants and projects.

Other factors supporting the PET market include recent consolidation among producers, rising fuel costs and strong demand for polyester fibre, which is widely being used as a cotton substitute, following poor cotton harvests in 2010.

However, some buyers have indicated that their resistance to the proposed April hikes is likely to be stronger than was the case in March, when increases of 5-7 cents/lb were widely implemented.

One buyer acknowledged that producers’ margins are fairly slim, but said this does not mean they are unsustainable, and advised that they could be improved by a more rigorous approach to cost control.

The buyer said a 3 cent/lb increase in April might be acceptable, but observed that some rollovers are also likely, and suggested that the import window for Asian cargoes could open again soon.

In the meantime, the lack of competitive imports is putting further pressure on US producers to keep pace with demand, in particular on the west coast.

“[T]here are logistical concerns brewing, as we send more material to [the] west coast, railcars become tight due to increased transit time and bulk truck availability has been very tight as well”, explained one seller.

Nevertheless, market observers continue to emphasise the role of feedstock costs in persuading buyers that further price increases are justified.

“I question the ability of the market to increase again in April. All the announcements say they will match raw material movements for April. Today it looks like April will be up some, but not 5 [cents/lb],” said one consultant last week.

Another consultant said last month that US PET prices are likely to fall around 20% in the second half of 2011, based on anticipated lower raw material costs and increased imports from Asia.

Domestic prices for bottle grade PET are currently assessed by ICIS at 99.50-101.50 cents/lb DEL.

US PET producers include DAK Americas, Indorama, M&G Group and NanYa.

($1 = €0.70)

For more on PET visit ICIS chemical intelligence

By: Samuel Weatherlake
+44 20 8652 3214

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