19 October 2012 09:48 [Source: ICB]
European polyethylene terephthalate (PET) producers are fighting for margins in a market where rollovers are the most likely outcome.
Falling demand and stable feedstocks mean PET producers are having to scrap to make any profit
After what one producer described as an 'abysmal' September where margins were lost, October also looks tough, sources agreed. "There is clearly going to be pressure downwards if demand drops and raw materials roll over," a producer said.
Bullish prices adopted along the chain that resulted from high upstream costs have come off the boil because of economic woes. Paraxylene (PX), which feeds into PET's primary feedstock, purified terephthalic acid (PTA), looked destined for another hefty increase but is now all set to roll over from September to October.
Many in the domestic market were taking cues from Asia, where a settlement for October was reached at $1,490/tonne CFR (cost and freight) Asia, a somewhat modest increase of $40/tonne compared to earlier nominations by producers seeking $150-200/tonne rises this month.
As for monoethylene glycol (MEG), PET's secondary feedstock, price discussions for October are proving difficult as buyers reject sellers' targets of an increase from September's €1,075/tonne FD NWE (northwest Europe). Each side is looking for compensation from previous months' prices and for parity with Asia, the dominant market.
Buyers and sellers agree that supply difficulties around the world have had an impact on Europe, a net importer. There is, however, discrepancy surrounding the necessity for product at this point in time.
"Europe [MEG] is too high now. It can't last," according to a PET player, echoing comments made by others.
MEG contract prices jumped from €885/tonne in July to €1,075/tonne in September, while PX soared from €995/tonne to €1,190/tonne FD NWE during the same period.
PET also increased, but not enough to secure producers maintained their margins, as the average PET price went up from €1,165/tonne to €1,285/tonne FD Europe, according to data from ICIS.
PET sellers failed to pass on higher production costs to their freely negotiated accounts in September, partly because of poor demand, which one source said was "disastrous". PET prices were mostly agreed at €1,270-1,300/tonne FD (free delivered) Europe, up by €20-40/tonne from August, when raw materials jumped up by €61/tonne.
Over the course of October and by November, some industry players expect to see prices fall further.
"There is no chance for a price increase in October. This month the longer you wait the better it is [for buyers]," a buyer said.
This may be driven by the arrival of a few imports which are due in at the end of October, early November, according to sources. There has been a dearth of imports for months, thus providing European producers with support to pass through higher production costs where possible.
This period, however, appears to be drawing to an end, particularly as new capacity is due on stream in the fourth quarter.
Taking into account plants that are down as well as up, the European market has been running at an average of 65%, according to one source - a figure which matches comments made by other players. If the situation does not improve, there is a risk of further consolidation among suppliers in 2013, according to several players.
With so much volatility in the upstream markets and exchange rates, price direction has been difficult to call, but many PET buyers and sellers are speculating on little to no change in October prices.
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