FocusAsia PTA plunges to 19-month low on bearish outlook

01 June 2012 06:53  [Source: ICIS news]

By Becky Zhang

SINGAPORE (ICIS)--Asia’s spot purified terephthalic acid (PTA) prices fell to a 19-month low because of bearish outlook fuelled by sharp falls in WTI crude futures and China’s PTA futures, market sources said on Friday.

Buying indications dived to $990/tonne (€802/tonne) CFR (cost & freight) China Main Port (CMP) for cargoes of South Korean origin on 1 June, the first time in the past one and half year to see three digits again, according to ICIS.

PTA prices were assessed at $1,008-1,026/tonne CFR CMP on 31 May, down by $134-136/tonne or 12% from a month ago, according to ICIS.

“Sentiment was poor as most people expect prices to fall further given uncertainties in crude and Europe,” a Macau-based trader said.

Although these are not directly related to PTA market, but these are the main factors to direct China’s PTA futures traded on Zhengzhou Commodity Exchange, he added.

“Both PTA buyers and downstream polyester buyers are holding back their purchases as they believe spot market will follow the downtrend in PTA futures,” a Shanghai-based trader said.

Poor scenario in PTA’s supply and demand situation is another fundamental reason for the soft PTA prices, a Zhejiang-based polyester maker said.

“Supply is increasing but demand cannot catch up,” the polyester maker said.

Polyester sales remained weak for the whole month in May which used to be a peak demand season in China.

The sale-to-output ratio of most Chinese polyester yarn plants was hovering at around 70-90% for most of the month, adding on additional inventories to the producers.

The average inventory level of polyester yarn plants climbed to around 15-30 days’ worth this week, according to ICIS.

“We don’t even see a sales boom of polyester which usually happens at the end of every month,” a second Shanghai-based trader said.

He explained that textile factories tend to buy more raw materials at the end of the month to obtain more incoming invoices to deduct their value added taxes for finished goods.

Weaker polyester export also contributed to soft demand for imported PTA, said a Jiangsu-based polyethylene terephthalate (PET) bottle chips maker.

China imported 434,000 tonnes of PTA in April, 20% less than March due to a slowdown of polyester export and heavy shutdown of PTA in South Korea and Taiwan during the period, according to the China Customs data.

Export-oriented polyester makers are the major buying force for imported PTA as they enjoyed free import and anti-duty tariffs.

“We haven’t received fresh orders for PET bottle chips in the past two weeks, but it is supposed to be still in its peak demand season which ends in late June,” the PET maker said.

This was echoed by a major polyester staple fibre (PSF) maker in Shanghai.

“Orders for PSF fell evidently in May compared with April,” he said.

Eight out of 10 polyester makers who planned capacity expansion in the second quarter of 2012 have delayed their start-up schedule to the second half of the year. The delayed polyester capacity expansion totalled at around 2.15m tonnes/year, according to ICIS.

Meanwhile, supply is expanding in a big way.

Early last week, Zhejiang Yuandong started up its new 1.4m tonnes/year PTA unit at Shaoxing in China’s Zhejiang province, which drew the deluge of China’s massive PTA capacity expansion.

A total of 9.9m tonnes/year PTA capacities are due by the end of the year, including China’s Tongkun Group, China’s Hengli Group, China’s Yisheng Hainan Petrochemical and China’s Xianglu Petrochemical.

However, three of the producers said there will be two-to-three months delay from original plans in June-July because of machinery and port construction issues.

The delays are good news to PTA in terms of supply, but is a bad news to feedstock paraxylene (PX) because the PTA producers rejected PX supply which was allocated to them in June-July, a Japanese trader said.

“Actually, price falls in PX offered more potential downsides for PTA, so is also a bad news to PTA,” he added.

Asia’s spot PX prices tumbled by $105-118/tonne or 8% in the past two weeks as a result of weaker demand and declines in crude futures, according to ICIS.

China’s economic stimulus policies issued early this week may lend some help to the market, but “cannot reverse the trend”, the Japanese trader said.

($1 = €0.81)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Becky Zhang
+65 6780 4359

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