OUTLOOK '12: Americas PET sentiment to firm in first quarter

02 January 2012 20:10  [Source: ICIS news]

HOUSTON (ICIS)--North and South American polyethylene terephthalate (PET) prices are expected to firm through the first quarter of 2012, following a decline in resin and feedstock prices in the latter part of 2011, sources said.

The US PET market is anticipated to grow at high rates in 2012, and prices will begin firming in the first quarter of the year, market participants said.

The slow economic recovery will hold back the growth in purified terephthalic acid (PTA) and PET in 2012, but only in a relatively small sense, according to one major producer of paraxylene (PX), a feedstock for PET. The source expects PET to be among the top growing markets in 2012, whether it is a 10% growth in a recovered economic world or 5% in a slow world.

PET prices will gradually move upward, following an increase in polyester demand between January and February, market sources said. Raw materials account for 90% of the cost of PET, and raw material prices are affected mostly by polyester demand, according to one market player.

PX  should be adequately supplied in 2012. New plants coming on stream – primarily in Asia – will result in excess capacity. However, operating rates will be determined by the amount of and access to the xylene feedstock needed to run the PX plants, sources said.

Two major factors that will lead to higher prices following the Lunar New Year will be stable crude oil prices and the start-up of Chinese PX units in the second quarter of 2012, according to sources.

Market participants said the EU financial crisis will not affect overall PET demand, since any possible impact should be limited to specific regions.

The Asian market is a major driver in the US, and its internal growth is not negligible. Asia will lead the US into higher prices after the Lunar New Year if PET demand continues its 6% growth and textile exports remain at the same pace as the past two years, according to a market source.

In Latin America, PET prices are expected to gradually rise through the first quarter of 2012 following the decline in resin and feedstock prices toward the end of 2011, sources said.

The probable scenario for Latin American is that PET prices will have reached bottom at year-end or by January 2012, lagging the trend in Asian markets. Although Latin American prices may linger at low levels in December and perhaps January, offers should start rising in the first quarter, in line with expectations in Asian markets, according to participants.

Although Latin America is not a monolith, where all countries react to global market forces in exactly the same way or at the same time, there is a commonality in the region’s response to dynamics in other regions, particularly in Asia.

Market participants in the Americas carefully monitor developments in Asian PET resin and raw materials to determine direction in other regional markets. Asian feedstock PX spot prices and the Asian Contract Price (ACP) for PX play a key role in establishing PET pricing around the world, sources said.

In addition, Mexican, Central American and Caribbean PET markets usually track the US market closely.

Brazil and Argentina, each a PET producer, are aligned with each other and show some independence from other external markets, although they also follow developments in Asia. Countries on the Pacific coast of South America are influenced more immediately by Asian PET markets because they rely on resin imports to fulfil requirements.

However, price direction in Latin America domestic markets lags extra-regional price changes, sometimes by months.

The PX ACP dropped from $1,655/tonne (€1,274/tonne) CFR (cost and freight) for September to $1,390/tonne for December, but PET prices in Latin America have been relatively steady during that period, and dropped substantially in December.

In early December, however, spot PX prices in Asia were heard rising and eventually the trend will probably place upward pressure on Latin American PET markets.

For December, PET domestic prices fell by $60/tonne in Argentina, $90/tonne in Brazil, $100/tonne in Colombia and $90/tonne in Mexico.

Latin America domestic delivered (DEL) PET prices for December stand at $2,040­–2,140/tonne in Argentina, $2,120­–2,190/tonne in Brazil, $2,290­–2,390/tonne in Colombia and $2,190­–2,260/tonne in Mexico, as assessed by ICIS.

If Asian PX and PET prices stabilise by January, as expected, PET prices in Latin America will probably follow soon after, according to sources.

Asian market direction is eventually a stronger driver in Latin America than the region’s supply and demand balances. Little impact on prices has been felt from either the start of the peak bottle-drinking season in the southern cone of South America or from the end of the high season in Colombia and Mexico.

The floods that ruined cotton crops last year in Pakistan are not having the same effect on PET prices this year. In late 2010, production of polyester resin moved from bottle-grade PET to fibre, which can be used as a substitute for cotton. As a result, bottle-grade PET supply tightened, driving up resin prices world wide.

In the US, cotton crops were damaged this year in Texas, because of drought, and again in Pakistan because of floods. Yet PET prices around the world, instead of rising as last year, have weakened in the past months on direction from Asian PX and PET resin.

Additional reporting by Ron Coifman

($1 = €0.77)

For more on PET visit ICIS chemical intelligence

By: Blanca Venegas
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