OUTLOOK '12: Europe PET set to lengthen but tempered by tight PX

02 January 2012 11:19  [Source: ICIS news]

By Caroline Murray

LONDON (ICIS)--European polyethylene terephthalate (PET) is likely to lengthen in 2012, partly because of new production capacities coming on-stream, but this could be tempered by a tight upstream paraxylene (PX) market, sources said.

“It will be all about the raw materials in 2012,” according to a PET buyer.

The surplus of purified terephthalic acid (PTA), PET’s primary feedstock which derives from PX, will continue unless there are line closures, buyers and sellers said.

Following a period of consolidation of production sites, Europe has seen the reopening of existing units under new leadership. Most recently has been Cepsa Quimica’s purchase of Artenius San Roque’s PET site in Spain from La Seda de Barcelona in January 2011, which will increase from 175,000 tonnes/year to 220,000 tonnes/year after expansions in 2012.

Artlant PTA’s new 700,000 tonne/year PTA plant in Sines, Portugal, will have saleable product in January/February.

Other forthcoming new European capacities due in 2012 include Indorama Ventures Limited’s (IVL) PET expansion of 190,000 tonnes/year to 390,000 tones/year in Rotterdam, the Netherlands, due to be completed in the second quarter of 2012.

“The PET guys...are not sure about the PET loadings [for 2012] but sure enough there will be PTA around,” an integrated PTA/PET producer acknowledged.

The crux of supply and demand in Europe is no longer just a matter of seasonality in the PET main bottle market which normally peaks during the warm summer months. Nowadays, developments in the Asian PET polyester segment dominates how the market reacts in Europe.

“Demand for polyester fibre recovery can happen at any moment in China,” a second producer said.

Asia is expecting an onslaught of 11.5m tonnes/year of PTA over the existing 43.7m tonne/year and much of what happens in Europe and Asia will depend on the timeliness of these start-ups.

On paper, global PX looks set to be structurally short in 2012, because of this increased demand into PTA.

Sources warn there could be a few surprises that are caused by a lack of raw materials when it comes to PET production. Indeed, polyester requirements are expected to grow by around 8% in regions such as China, Russia and India and crude oil is set to remain expensive.

It is likely to be a year of extremes for PET’s secondary feedstock, monoethylene glycol (MEG). Europe, a net importer of MEG, may experience times of plenty and times when prices shoot up due to a scarcity of imports.

“The gap between demand and supply is becoming bigger and bigger so the market reacts more quickly,” an MEG trader said.

Increased PET capacity will result in more of a pull on MEG availability and for this European MEG prices require a good return for importers, a difficult market scenario should Europe flounder financially while Asia continues to grow.

Some PET customers are opting to take more risks on the spot market than they did in 2011 as increased capacities and imports should create a more competitive PET environment. Buyers are less inclined to fix cost plus agreements for 2012 because of their belief in high volatility upstream and uncertain demand, sources agreed.

Financial diffidence, caution and hand-to-mouth activity were all key drivers in the PET market in the fourth quarter, at least until December when prices bottomed out and customers identified an opportunity to buy forward, fixing prices well into the first half of 2012.

With upcoming nameplate capacity increases, particularly in mid-2012, producers have been more open to discussing fixed prices for 2012, according to the trade.

During these difficult macroeconomic times it could be that some capacities are forced to shut down, particularly the “financially weaker” ones.

2012 will still be a challenge to cover 3.5m tonnes/year of demand in Europe, sellers said. Another added that “it could be a really big year for PET,” citing football championships and the Olympics in London.

Buyers and sellers expect prices to average out anywhere between €1,200-1,450/tonne ($1,558-1,883/tonne) FD (free delivered) Europe in 2012, depending on source.

“The 2012 picture will be different due to the current recession... I predict a more stable price condition of plus/minus €100/tonne [compared with 2011],” a major consumer of PET said.

The one concensus is that anything can happen in these difficult, fast-moving times.

“2012...will be anybody's guess. Europe is in a recession so who knows,” one source said, echoing statements made by several others.

($1 = €0.77)

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For more on PET, PTA, MEG, PX visit ICIS chemical intelligence
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By: Caroline Murray
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