Polyester fiber market demand to drive global paraxylene growth

05 March 2012 00:00  [Source: ICB]

catwalk fashion models, Rex Features

 © Rex Features

The fashion for artificial fibers such as polyester is driven by high cotton prices

The global paraxylene (PX) market has undergone dramatic expansion over the past few years. Despite massive capacity additions during 2009-2010, PX prices and margins remained strong, driven by demand growth in China, a severe shortage of cotton and production issues in the Middle East and Asia.

From 2012, purified terephthalic acid (PTA) and polyester capacity development has created a serious concern over PX supply. The PX market is expected to remain tight on rising polyester demand, while PTA and polyester operating rates will be severely depressed. PX operating rates are likely to decline over 2013-2015 as a result of several new PX production plants in the Middle East and Asia.

Global cotton fiber production declined by almost 20% from 2004 to 2009, equivalent to a drop of almost 5m tonnes, before a partial recovery during 2010-2011. Meanwhile, polyester fiber continued to gain its share in global fiber supply, passing 50% in 2011. Although the market for polyester fiber is now substantially larger than that of cotton, the condition of the polyester market will remain subject to variations in cotton supply.

Cotton production and inventory increased during 2011 and is forecast to be higher again in 2012. Cotton prices have approximately halved since their peak in March 2011, but remain significantly higher than historical averages. Recovering cotton supply will slow the growth of polyester fiber, the rate of which has been over 10% in the last two years. Neither of the key North American and western European garment markets is likely to provide much cheer on the demand side in 2012, leaving the developing markets to drive end-use growth.

POTENTIAL SLOWDOWN IN CHINA

Between 2008 and 2010, demand growth of polymers in China, including polyester, was spurred by the Chinese government's stimulus packages. Domestic demand for finished goods soared, regardless of a slowdown in the export business amid the global financial crisis. It is believed that domestic consumption of textiles and clothing rose to ­approximately ­two-thirds of total supply. Amid the current uncertainties among Western economies, export markets are not very promising, and the growth of Chinese polyester fiber consumption will depend mainly on domestic consumption of textile and clothing.

Urbanization in China rose from 36% in 2000 to 51% in 2011. China National Bureau of Statistics figures show that the urban population already accounts for over 85% of spending on apparel. Chinese per capita consumption of polyester fiber has already grown to around half of the level seen in the US, while GDP per capita remains much lower, therefore the market is reaching maturity. Expenditure on clothing has remained high at over 10% of urban household expenditure. There is room for growth, but less than the last ten years.

Moreover, tightening monetary policy by the Chinese government has already affected demand for other polymers including polyolefins. The policy could well impact the growth of the polyester business in the coming years.

The Indian and Pakistani markets are small compared to China. With the current aggressive development in downstream polyester by companies such as India's Reliance Industries and Thailand's Indorama Ventures, rapid growth of PX consumption is expected. This will, however, come together with new PX capacity by Reliance, Oil and Natural Gas Corp. and a smaller unit in Pakistan. Unlike in China, the markets in India and Pakistan are relatively immature with high growth potential. Others such as Bangladesh and Cambodia are developing downstream activities, and could see integration back up the petrochemical value chain.

OVERSUPPLY IN SOUTH ASIA

The rapid development of both PTA and polyester capacity is forecast to push both markets into oversupply, squeezing margins for PTA and polyester producers. While this removes potential bottlenecks in the value chain, PX consumption growth is expected to follow the end-use demand drivers in textile and container uses rather than new PTA capacity.

We estimate that global PX production in 2011 was 33m tonnes, so the operating rate is slightly below peak levels seen in 2004-2005 of around 90%. The recent strong PX price premium over naphtha has been driven not only by robust demand, but also by a number of production issues in the Middle East and Asia, particularly in Iran and China.

The US sanctions resulted in the shortage of gasoline supply into Iran, and reformate feedstock for aromatics production was ­diverted to the gasoline pool. At the same time, the world's largest PX production line in Urumqi, China, encountered logistics issues in 2010 to early 2011 before ramping up its production rate afterwards.

In 2012, the capacity additions scheduled to come online include Chinese groups Dragon Aromatics and Sichuan Petrochemical, plus small expansions by Samsung Total in South Korea, Thai Paraxylene in Thailand and US group ExxonMobil in Singapore. Dragon Aromatics is forward-integrated with a new 2m tonne/year PTA unit at the same site.

Improvements to merchant PX supply in 2012, therefore, relies on new supply from Sichuan Petrochemical, capacity expansions and the hope that underperforming units will run at higher rates.

From 2013 onwards, new PX capacity in Asia and the Middle East includes Luoyang Petrochemical and Hainan Refinery in China; HC Petrochem, Samsung Total and the joint venture between Japan's JX Nippon Oil & Energy and SK Global Chemical in South Korea; Jurong Aromatics Corporation in Singapore; Reliance and ONGC in India; Byco Oil Pakistan Ltd. in Pakistan; and Saudi Aramco Total Refinery and Petrochemical Company and Ibn Rushd in Saudi Arabia. Saudi Aramco is studying a major investment in aromatics, potentially adding a few million tonnes of PX. Zhejiang Hengyi is also looking to secure PX supply through a joint venture with Brunei Shell Petroleum. The project detail is still unclear, as it will produce refined products along with PX.

PX trade from the Middle East to Asia is forecast to expand further, despite substantial expected PTA developments in the Middle East. The start-up of a new PTA unit in Sines, Portugal, planned in 2012, will shift Western Europe towards a net import position on PX. As a result, arbitrage opportunities from Europe and Asia are likely to be sporadic at best as both regions will have a net deficit of PX.

New supply in North America is limited to the prospect of a new PX unit by PEMEX, with capacity of 486,000 tonnes/year scheduled to come online in 2015. Nevertheless, the new supply will be more than offset by two new PTA units in the United States and Brazil. The regional market will thus become structurally shorter in PX. Atyrau Refinery has a 500,000 tonnes/year PX plant currently under construction in Kazakhstan, which will produce PX mainly for export to China.

PX profitability will face the opposing effects of relatively strong demand growth and weak benzene co-product returns from reforming and toluene disproportionation. The additional supply from 2013 onwards could provide some relief to the currently tight market, with margins easing modestly in the medium term. PTA/polyester margins and operating rates, on the other hand, will be under severe pressure from the weight of new capacity additions over the next five years.

Tiankanok Sirichayaporn is a consultant at Nexant
For more information, contact aibbotson@nexant.com


Author: Tiankanok Sirichayaporn



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