OUTLOOK ’12: Asia PTA makers to face pressure after expansions

29 December 2011 06:48  [Source: ICIS news]

By Becky Zhang

PTA is primarily used in polyester production.SINGAPORE (ICIS)--Asia’s purified terephthalic acid (PTA) producers will come under mounting pressure because of fresh capacity start-ups and plant expansions in 2012, producers, traders and end-users said.

Asia’s PTA capacity is set to grow by 26% in 2012, as compared with 13% in 2011.

A total of 11.5m tonnes/year of PTA capacity, including six new plants and one debottlenecking in China, will be added to Asia’s existing capacity PTA of 43.7m tonnes/year, according to ICIS data.

China’s Zhejiang Yuandong Petrochemical is to lead a deluge of PTA expansions in China. With its new 1.4m tonne/year No 4 PTA unit at Shaoxing in Zhejiang province scheduled to be brought on stream in early March, the company’s total PTA capacity will reach 3.2m tonnes/year in 2012.

BP Zhuhai will complete the debottlenecking of its 900,000 tonne/year No 2 PTA plant at Zhuhai in China’s Guangdong province in early January 2012, raising its capacity by 200,000 tonnes/year.

This will bring BP Zhuhai’s total PTA capacity in China to 1.6m tonnes/year. BP’s global PTA capacity will reach 7.45m tonnes/year in 2012.

China’s Jiaxing Petrochemical, a subsidiary of Tongkun Group, plans to start up its 1.5m tonne/year PTA plant at Jiaxing, Zhejiang province, in the second quarter of 2012.

The plant’s output will be kept for captive consumption. Tongkun Group, the fifth-largest polyester manufacturer in China, has a total polyester yarn capacity of 1.5m tonnes/year at Tongxiang in Zhejiang province.

China’s Zhejiang Yisheng Petrochemical, the largest PTA producer in Asia with a total capacity of 5.5m tonnes/year in 2011, plans to bring on line another 2m tonnes/year of PTA capacities in China’s southern Hainan province in July-August next year. This will bring the company’s total PTA capacity to 7.5m tonnes/year and make it the world’s largest PTA producer.

China’s Xianglu Petrochemical will start up its 2m tonne/year PTA plant at Zhangzhou in Fujian province in the third quarter of 2012. The start-up of its new plant will raise its total PTA capacity to 3.65m tonnes/year and make it the second-largest PTA producer in China after Zhejiang Yisheng Petrochemical. The producer has a 1.65m tonne/year PTA plant at Xiamen in Fujian province. 

Chinese polyester major Hengli Group has plans to bring on line a total of 4.4m tonnes/year of PTA capacity at Dalian in China’s northeastern Liaoning province during the third quarter of 2012. Its first 2.2m tonne/year PTA unit will be started up in July and its second 2.2m tonne/year unit is scheduled to come on stream in September-October next year.

In comparison, capacity growth in the downstream polyester sector during 2012 will lag behind that of PTA.

The 11.5m tonnes/year of new PTA capacity can support around 9.9m tonnes/year of fresh polyester production, but only around 8.5m tonnes/year of new polyester capacity are expected to be put into operation in 2012, according to ICIS data.

Of that 8.5m tonnes/year of polyester capacity, over 6m tonnes/year will be started up in China, 1.7m tonnes/year in India and the rest in South Korea and southeast Asia.

This will boost Asia’s total polyester capacity by 15% year on year to 63.0m tonnes/year in 2012, around 66% of which will be for polyester filament yarns, 22% for polyethylene terephthalate (PET) bottle chips and the rest for polyester fibre and film production.

This does not bode well for Asia’s PTA producers, who said they have already been suffering losses since late September this year (see graph).

The price spread between feedstock paraxylene (PX) and PTA narrowed to $115/tonne (€89/tonne) in the fourth quarter of 2011. The typical breakeven price for producers is said to be at around $150/tonne.

The negative margins have caused some Thai and Taiwanese producers to propose including a cost component into their contract formulae, instead of being solely relied on market prices. However, the response from buyers has not been good.

“We’ve achieved no progress in negotiations because our Chinese customers are not interested,” a major Korean PTA producer said.

Some Zhejiang-based polyester makers were bidding for a discount of $7/tonne from the CFR (cost & freight) China Main Port (CMP) quote, for cargoes that are exempt from anti-dumping duties (ADD), or a discount of 1.8% to CFR CMP quotes for Korean imports that are subject to ADD of up to 2.6%.

In comparison, most PTA term contracts between Korean producers and Chinese end-users in 2011 were concluded at a premium of $3-12/tonne to spot CFR CMP quotes, for cargoes that are subject to ADD of up to 2.6%.

“We are in no hurry to sign US-dollar priced contracts, particularly for the second half of next year, because domestic supply will be more than enough,” a Chinese polyester maker said.

“We are in a weak position for 2012 contract negotiations. So we prefer to monitor other producers’ progress before making any commitment,” a major Taiwanese PTA producer said.

Chinese PTA majors Zhejiang Yisheng and Zhejiang Yuandong are mulling an increase in their discounts to yuan (CNY) 140/tonne ($22/tonne) from the current CNY120/tonne for contract volumes equivalent to above 10,000 tonnes per month.

In view of their negative margins, producers across the region have since November started a round of production cutbacks, either lowering their operating rates or shutting plants, to reduce their losses.

PTA plants in Asia were running at a reduced average rate of around 86% capacity in 2011, compared with 90% in 2010, ICIS data showed.

The operating rate is expected to drop further to as low as 75% capacity in 2012 when the new PTA capacities come on line, a major regional trader said.

The move, coupled with pre-holiday restocking activities, underpinned PTA prices in December and is expected to continue lending some support to prices, traders said.

Spot PTA prices in Asia rose to $1,090-1,110/tonne CFR CMP, up by $35-47/tonne from the previous month, according to ICIS.

As a result of its new PTA capacities, China is expected to rely more on domestic production and import fewer cargoes, traders said.

China imported a total of 4.89m tonnes of PTA in January-November 2011, down by 1.3% from the same period a year earlier.

Taiwan, South Korea and Thailand are the major import origins for China, which accounted for over 97% of the country’s total PTA import volumes this year.

However, India will be able to take in more PTA imports from Korea, Taiwan and Thailand as the country is expected to bring on stream 1.7m tonnes/year of new polyester capacity next year. Meanwhile, there are no domestic expansion plans for PTA, a major Indian PTA producer said.

There are eight major polyester projects planned for 2012 in India, the majority of which will be for polyester filament yarns.

The largest project is Reliance’s 390,000 tonne/year filament yarn plant expansion in Silvassa, which is expected to be started up in the fourth quarter of 2012. This will bring Reliance’s total polyester capacity to 2.4m tonnes/year in 2012.

The trade flows in Asia are also subject to change because of an impending removal of import duties for cargoes of Thai, Malaysian and Indonesian origin under the Association of South East Asian Nations (ASEAN) Free Trade Agreement (FTA), which will take effect on 1 January 2012, producers and traders said.

A 5% import duty on PTA imports from Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand will be cut to zero from 1 January 2012 onwards, according to China Customs.

“China may export PTA from next year onwards,” said a source from Zhejiang Yisheng, the largest PTA producer in China.

“Southeast Asian PTA cargoes will be able to compete with Taiwanese [material], given their tariff advantage,” a major Shanghai-based trader said.

However, some traders said they do not expect it to have much of an impact on PTA prices because the availability of southeast Asian material will be limited given the well balanced supply-demand situation in that region.

Nevertheless, there are still many uncertainties for Asia’s PTA market, traders said, because PTA spot prices closely track the trends in China’s PTA futures, which in turn are affected by the current volatile macroeconomic environment.

“Next year will be tough for PTA producers in terms of sales and margins,” a major Chinese PTA producer said.

However, a major regional trader that is seeking more term contracts in 2012 said: “A general bearish supply-demand outlook does not mean there are no speculative opportunities.”

Asia

China

($1 = €0.77)
($1 = CNY6.32)

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By: Becky Zhang
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