INSIGHT: Latin America PET prices lower on prolonged Asian weakening

19 June 2012 17:25  [Source: ICIS news]

By Ron Coifman

HOUSTON (ICIS)--The drop in prices of polyethylene terephthalate (PET), upstream purified terephthalic acid (PTA) and paraxylene (PX) in Asia continues to place downward pressure on the PET sector in Latin America in June, and the trend is likely to extend at least into July, according to regional market sources.

Countries along the South American Pacific coast rely on PET imports. Colombia has limited PET production but still remains a net PET importer.

Asian PET is offered in mid-June at $1,345/tonne (€1,063/tonne) CFR (cost and freight) Pacific coast of South America, down from $1,570-1,600/tonne CFR in late May. PET prices were assessed at $2,040-2,100/tonne CFR Pacific coast of South America in April 2011 and at $1,730-1,780/tonne CFR in February 2012.

Participants in the region expect further price erosion through July, driven by weakening resin and feedstock markets in Asia.

In Latin American countries which are less directly exposed to the dynamics from Asia because domestic production dampens the volatility in global markets, prices are also trending down, although more gradually.

In Argentina and Brazil, domestic PET prices dropped by $30/tonne in June, but are expected to decline again in July. Closely aligned with the trend in the US, the PET market in Mexico is also weakening. Sources in Mexico said June PET prices are down from May by 4.5 cents/lb, but added that prices could erode further before the end of the month.

Participants in Latin America and around the world continue to focus on the Asian Contract Price (ACP) and spot prices for paraxylene (PX) as key drivers for the PET market. The June PX ACP settled at $1,335/tonne CFR (cost and freight) Asia, down by $195/tonne from $1,550/tonne CFR Asia in May. In April 2012, the PX ACP stood at 1,650/tonne CFR Asia.

In the Asian spot market, PX prices are trending down as well, and were assessed on 8 June at $1,180-1,190/tonne FOB (free on board) Korea.

Most players gauge supply of June PX cargoes in Asia as long, although some traders said that product for July shipments remains tight ahead of the expected start-up of new PTA facilities in Asia into the third quarter of 2012.

Sources in Latin America assess PX margins as ample and ripe for a correction, and they believe that PX prices could drop further on faltering support from crude oil.

West Texas Intermediate (WTI) futures closed at $82.62/bbl on 13 June, down from $98.41/bbl on 7 February and from $102.96/bbl on 3 January.

However, several other factors around the world are also contributing to downward pressure on PET resin in the Americas, as well as globally. Participants point to the plentiful supply of resin for the fibres and bottle markets, globally soft demand for textiles and bottled soft drinks, slowing growth in China, the eurozone economic crisis, and no major issues with cotton crops which might require polyester resin as a substitute in yarn production.

Other developments in Asian markets will also continue to drive the Latin American market through 2012, sources said.

In Asia, demand cannot catch up with an already ample, yet increasing, availability of PET and PTA. In Asia, PET capacity is expected to rise by more than 2m tonnes/year to about 11.4m tonnes/year in 2012, led by expansions in China, Taiwan and India.

Meanwhile, PET demand growth in Asia is likely to increase by only 600,000-700,000 tonnes to 6.5m tonnes/year, a northeast Asian PET maker said

Also, a total of 9.9m tonnes/year of new PTA capacities is due by the end of the year in China.

High inventories, deteriorating product margins and weak demand are driving the global trend and particularly, the cutbacks in polyester production in China. Around 870,000 tonnes/year of polycondensation capacity in China has been shut in early June, 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% by mid-June, from 70-75% seen earlier in the month, according to Chemease.

Current Latin American demand for PET is weak on different dynamics, depending on country. Sources in Argentina, Brazil and Chile noted muted activity during the winter off-season when bottled-drink consumption drops.

In Mexico, the beginning of the peak season has not driven a substantial increase in resin purchases because the weather has not been as hot as expected for this time of year. Projections of market growth from 2011 to 2012 have been scaled back in Mexico, and soft-drink bottlers are making efforts to maintain sales volumes from last year, local sources said.

PET processors are also waiting for resin prices to fall further and are dampening the Latin American market.

($1 = €0.79)

Additional reporting by Becky Zhang and Trish Huang

Read Paul Hodges’ Chemicals and the Economy blog
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By: Ron Coifman
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