OUTLOOK '12: Asia PET output may fall in H2 2012 on oversupply

02 January 2012 01:00  [Source: ICIS news]

By Trisha Huang

MELBOURNE (ICIS)--Asia’s increasing oversupply of polyethylene terephthalate (PET) bottle chips may force producers in China to operate their plants at reduced rates in 2012, market sources said.

Chinese PET producers may operate their facilities at an average of 75-80% capacity in the second half of 2012 after producers, including China Resources and Thailand’s Indorama Ventures, start up their plants in the country, the sources said.

Asian PET capacity is expected to rise by more than 2m tonnes/year to about 11.4m tonnes/year in 2012, led by expansions in China, Taiwan and India.

The demand growth in the region is lagging behind that of supply and is likely to increase by only 600,000 to 700,000 tonnes to 6.5m tonnes/year, a northeast Asian PET maker said.

The regional supply surplus is estimated by some market participants to increase to 5m tonnes in 2012, from 4m tonnes in 2011.

“Some of the new capacity will have to be directed towards the export market,” the PET maker said.

“Competition among exporters for the existing markets will likely intensify,” he added.

Asia’s PET capacity is already in oversupply.

Producers in South Korea export about 80% of their output, while those in Taiwan sell close to 90% to markets abroad, including Russia, the Commonwealth of Independent States (CIS), Africa, the Middle East, Central and South America, Australia and New Zealand. 

In Taiwan, Far Eastern Group this year boosted its nameplate capacity to 650,000 tonnes/year.

In addition, Shinkong Synthetic Fibers will double its capacity to 400,000 tonnes/year with the December 2011 start-up at its 200,000 tonne/year line at Zhongli in Taoyuan county.

With the local Taiwanese market consuming only about 160,000-170,000 tonnes/year, 100% of the supply from Far Eastern Group and Shinkong Synthetic Fiber’s expanded plants will be targeted to the export market.

In India, Dhunseri Petrochem & Tea is planning to bring on stream 210,000 tonnes/year of PET capacity at Haldia in west Bengal. The expansion will more than double the company’s bottle chip capacity in India to 410,000 tonnes/year.

The producer is planning to export about 50% of its output in India when it starts bottle resin production at the new line, a company source said in September. 

The bulk of the new capacity planned for 2012 will take place in China, led by expansions undertaken by China Resources, Zhejiang Wankai New Materials and Indorama Ventures.

China Resources’ expansions at its Changzhou and Zhuhai plants will boost the company’s total PET capacity to 1.3m tonnes/year by the end of March 2012.

The company is adding two PET lines of 300,000 tonnes/year each to its existing 400,000 tonne/year plant at Changzhou in Jiangsu province.

In addition, China Resources is planning to start up a 300,000 tonne/year PET plant at Zhuhai city in Guangdong.

The expansion undertaken by Zhejiang Wankai will more than double its bottle chip capacity at Haining in Zhejiang province to 650,000 tonnes/year from 250,000 tonnes/year by the first quarter of 2012.

Thailand-based global producer Indorama Ventures will start commercial output at its expanded plant at Kaiping in Guangdong province in late April 2012.

The company is adding two lines totalling 300,000 tonnes/year to the 100,000 tonne/year Kaiping line. 

After the expansions, China’s bottle chip capacity is expected to rise to 6.5m tonnes/year in 2012, while the country’s demand will increase to about 3.6m tonnes.

With exports accounting for only about 1m tonnes of the nation’s PET output, some producers may be forced to cut their plant operating rates to alleviate oversupply.

“China’s demand is set to grow only by 300,000 to 400,000 tonnes in 2012,” a Chinese PET producer said.

“However, capacity is set to surge by 1.6m tonnes, which is a net increase of 1.2m tonnes,” the producer added.

“Producers may have to run their plants at reduced rates,” the Chinese PET maker said. “In addition, competition among exporters will intensify.”

Other market participants project China’s demand growth at closer to 500,000 tonnes in 2012. The nation’s demand is estimated by several producers at 3.1m-3.2m tonnes in 2011.

“Competition for the export market will become more severe in 2012,” a northeast Asian trader said. “However, local supply in some of the Asian producers’ biggest export markets, such as the Middle East, is also rising.”

Oman’s OCTAL is planning to complete a 527,000 tonne/year expansion at its PET plant in the sultanate in May 2012, which will bring the company’s total PET capacity to 927,000 tonnes/year.

Capacity expansion in markets, including the Middle East, Russia and Brazil, “will curb demand for Asian exports,” the trader said. “The markets are shrinking.”

However, some market participants said the situation may not be as bearish as the figures suggest.

“The new capacities in China will not all come on stream at the same time,” a major southeast Asian PET producer said.

“The numbers refer to the producers’ nameplate annual capacities, but not their effective capacities, which may be lower.”

Chinese PET makers may have to operate their plants at lower rates in the second half of 2012, but this will still be moderate compared with past years, the producer said.

“If you look at Chinese PET producers’ production levels in recent years, those have been roughly at 85-90% capacity,” the producer added.

“Chinese PET output may drop by 5% in the second half of 2012, or by about 100,000 tonnes, which is insignificant compared to the total market size.”

In addition to the staggered timeline for the new capacities, it is common for new plants to be delayed, the producer said.

“Everyone is expecting margins in 2012 to be worse than those seen in 2011, but we as a PET producer expect margins next year to be similar to this year because the effective capacity increase will be balanced by demand growth to a great extent,” the producer added.

For more on polyethylene terephthalate, visit ICIS chemical intelligence
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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Trisha Huang

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