FocusChina polyester makers cut output on high stocks, poor margins

12 June 2012 09:21  [Source: ICIS news]

By Becky Zhang

SINGAPORE (ICIS)--Chinese polyester makers have started cutting production early this month amid current high inventory and deteriorating product margins – a market condition that was last seen in December 2011, industry sources said on Tuesday.

Around 870,000 tonne/year polycondensation capacity has been shut in the past week, with another 1.6m tonnes/year of capacity due to come off line between now and July, industry sources said.

Out of around 2.5m tonnes/year of polycondensation capacity that will be taken out of the market, around 44% is polyester yarn production, 26% polyethylene terephthalate (PET) bottle chips, 22% PET fibre chips and 8% polyester staple fibre (PSF), they said.

Polyester yarn and fibre makers in China have further reduced operating rates at plants to 68-73% this week, from 70-75% seen a week ago, according to Chemease.

Overall inventories of Chinese polyester yarn plants swelled to 15-32 days’ worth this week, compared with 11-26 days’ worth seen a month ago.

“Our inventory is so high and the current market situation is poor,” said a source from Shaoxing Yuandong Chemical Fibre Group, which runs four 200,000 tonne/year polycondensation plants.

Half of the company’s total output polyester yarn and the other half is PSF.

The company has shut one of its four plants for the production of polyester yarn on 10 June for 20-30 days of maintenance. It further plans to shut another line that produces PSF late this month, if the current situation fails to improve, the source said.

Among polyester products, PET bottle chip and fully draw yarn (FDY) saw the steepest price declines of 12-13% in the past month, according to Chemease, an ICIS service in China.

PET bottle chip was traded at around CNY9,500-9,600/tonne (1,494-1,509/tonne) ex-warehouse (EXWH) on 11 June, while FDY150 denier/96 filament was traded at CNY9,800-10,000/tonne, market sources said.

Meanwhile, prices of polyester oriented yarn (POY) and PET fibre chips have also fallen by around 11-12% from a month ago, while PSF values came off by 8% over the same period, Chemease data showed.

The steep falls in polyester product prices were in line with the slumping values of feedstocks purified terephthalic acid (PTA) and monoethylene glycol (MEG). PTA prices shed 19-20% in a month’s time, while MEG lost 13-14% of its value over the same period, according to ICIS.

At current prices, producers of FDY150D/96F and PET bottle chip are estimated to be incurring losses of around CNY1,300/tonne and CNY800/tonne, respectively, based on their May contract for feedstock PTA and MEG.

May contract prices for PTA in China were at CNY8,850/tonne DEL (delivered), and at CNY7,750/tonne DEL for MEG.

For POY150D/48F, losses are estimated at around CNY1,300/tonne, while PSF producers are incurring losses of about CNY800/tonne, market sources said.

“Production cutbacks can help reduce our losses, but we are not sure whether it can help underpin prices,” said a company source from Zhejiang Huaxin Group, which shut its 160,000 tonne/year PET fibre chip plant in early June.

The company’s another 200,000 tonne/year polycondensation plant has been running at a reduced operating rate of 80% since late May, the source said.

“We have received requests from our customers to cut supply allocations in June and July because of their production cutbacks,” said a major Zhejiang-based PTA producer.

Taiwanese and South Korean PTA producers have also been cutting output.

In Taiwan, Oriental Petrochemical shut its 400,000 tonne/year T9 PTA plant in Taiyuan on 10 June, with the plant expected to be down for a week, a company source said.

China American Petrochemical Co (CAPCO) also shut its 250,000 tonne/year No 4 PTA plant in Kaohsiung on 11 June for around 20 days of maintenance because of the poor market condition, said a company source.

In South Korea, Samsung Petrochemical has also taken its 450,000 tonne/year No 2 plant at Ulsan off line on 7 June for 9-10 days of maintenance.

The shutdown may be prolonged in view of the current situation, a company source said.

“India has seen the same extent of production cutbacks last week,” said a major polyester maker in India.

India’s polyester industry was operating at an average rate of around 60-65% last week, down from 70-75% in May, industry sources said.

“People have no confidence of a market recovery in [the] short-to-medium term and thus, have been keeping a cautious approach in business,” said a regional trader.

($1 = CNY6.36)

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

By: Becky Zhang
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