FocusCorrected: Europe PET prices continue to tumble amid feedstock freefall

28 June 2012 17:48  [Source: ICIS news]

Correction: In the ICIS story headlined "Europe PET prices continue to tumble amid feedstock freefall" dated 28 June 2012, please read in the 10th paragraph €1,035/tonne... instead of €935/tonne.... A corrected story follows.

LONDON (ICIS)--European polyethylene terephthalate (PET) prices continue to drop during the traditional high season for PET bottlers, as the cost of raw materials plummets, sources said on Thursday.

"We have the high season and … people are hesitant. There will be a reduction [in July], the question is how much," a reseller said.

The certainty of another price decrease in July amid the doom and gloom of the economic situation, served to keep PET buyers out of the market.

"The pipeline is empty. People have to buy and are still [doing so] hand-to-mouth," the reseller added, echoing comments made by other buyers and sellers.

Sentiment is pessimistic overall and while some suppliers may be covered by contract sales and run well, others have product they cannot shift, according to sources.

"We see no real high season in terms of demand," a producer said.

PET prices have been on a steady decline because of lacklustre demand through the chain since March, when €1,400/tonne ($1,750/tonne) FD (free delivered) Europe was attainable, according to data from ICIS.

June contracts were agreed in the €1,200s/tonne and the onset of yet another hefty decrease of raw material prices is now forcing spot PET into the mid €1,100s/tonne.

Upstream paraxylene (PX), which feeds into PET's main feedstock purified terephthalic acid (PTA), and PET's secondary feedstock monoethylene glycol (MEG), have experienced a similar downward spiral.

A fall of €170/tonne from June to July to €1,035/tonne FD NWE (northwest Europe) for MEG feedstock ethylene, could mean a drop of over €100/tonne for MEG which makes up for around 35% of PET production.

However, MEG producers cite terrible margins and are not so bearish in their targets for July contracts.

"I've given [the ethylene decrease] away already. The reduction in MEG compared to ethylene has been far greater [in quarter two] … The ethylene drop is not an argument that counts for me," an MEG producer said.

Other MEG sellers are focusing on developments in the dominant Asian market which a second producer said would "hopefully" lead to a rollover at €925/tonne FD NWE for European contracts.

July Asian MEG contract nominations are down by $140-180/tonne compared with June. Spot prices have been dropping since early May but had started a slow climb up to $840-850/tonne CFR (cost and freight) China Main Port on Thursday.

While the July PX price will depend on the crude oil price and exchange rates at the time of concluding contracts, downstream players expect to see a decrease of €50-90/tonne from June's €1,090/tonne FD NWE.

"We are waiting for the final outcome in Asia … European PX producers should acknowledge the poor downstream markets PTA and PET," a PTA producer said.

There may be light at the end of the tunnel if prices were to mimic the trends seen in previous years, sources said.

"Pricing will go up. The PX graph in the last three years oscillates … I would not be surprised to see August rolling over and September moving up," a PTA customer said.

Others agree that once the peak summer season is over in Europe, dynamics in Asia and upstream will pull prices back up.

There are players that say PET prices have been disconnected to raw material prices as PET producers have lost margin.

"Costs are not driving PET," a customer said, adding that it is more a matter of demand and supply.

Traditional imports have taken a back seat because demand has been bad because of poor macroeconomics and expectations of further price decreases, so customers are reliant on domestic product.

When it comes to imports, "no-one wants to take the risk," the reseller said.

Meanwhile, there are PET expansions in Rotterdam, the Netherlands, and in Oman, which are both under way and expected to be operational soon.

"There is no big ray of sunshine on the horizon," a customer said.

($1 = €0.80)

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By: Caroline Murray
44208 652 3214

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