FocusEurope PET prices could fall on lower production costs

31 May 2012 12:33  [Source: ICIS news]

By Caroline Murray

PET is used in the manufacture of plastic bottlesLONDON (ICIS)--The cost of producing polyethylene terephthalate (PET) in Europe is likely to decrease in June which may mean another fall in prices, sources said on Thursday.

"What is sure is there is going to be a price reduction in the market. What is not clear is how much," a producer said.

Upstream, three Asian majors settled June paraxylene (PX) contracts on Thursday at $1,355/tonne (€1,098/tonne) CFR (cost and freight) Asia, a $195/tonne fall from the previous month’s settlement.

Asia's position traditionally dictates price developments in Europe and buyers are somewhat galvanised to push for a similar decrease in June.

Meanwhile, purified terephthalic acid (PTA) futures in China dropped by 2.5%, according to sources on Thursday. PX feeds into PTA, which is a major component of PET.

The European June ethylene price decreased by €120/tonne to €1,205/tonne FD (free delivered) NWE (northwest Europe) and this will impact discussions for PET's secondary feedstock, monoethylene glycol (MEG).

These factors will undoubtedly impact the PET situation in Europe. Producers argue that part of the expected drops in feedstock costs have already been given away to customers in deals done in May.

"We anticipated a big portion of [the decrease in June production costs] in deals already done," the producer commented.

PET producers talk of recovering margins following three months of price drops and unseasonably weak demand.

The warm weather and upcoming major sporting events may result in better demand for PET.

"When it is warm, demand can increase by 50%," a second seller said. 

Others are less optimistic and acknowledge that the economic crisis may not prompt the additional sales that other expect.

"Demand is not robust, even with the football and the Olympics," according to a third supplier.

A lack of imports caused by soft demand and exchange rate fundamentals may create a greater market share for domestic producers. The fact that the price differential between recycled PET and virgin PET is so narrow, could also perk up demand for the latter, some sources say.

"If they get offers of €1,200/tonne my [recycled PET] customers would buy more virgin than recylcled PET," a buyer of both grades said.

So far though, a force majeure in Lithuania and a shutdown in Spain have done little to tighten the market.

Towards the end of May, more and more business has been taking place below €1,300/tonne FD Europe. Bids reach into the low €1,200s/tonne now but suppliers say they simply cannot afford to go that low.

The market is yet to digest news from the upstream sector and discussions regarding PET prices continue.

($1 = €0.81)

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By: Caroline Murray
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