11 January 2013 11:33 [Source: ICB]
Margins for PET bottle chip producers have been squeezed since mid-2012 and more losses hit in the last quarter
Asia's polyethylene terephthalate (PET) bottle chip producers are set for a challenging year ahead after suffering from squeezed margins and losses in the second half of 2012, because of an overcapacity in the region, market sources say.
China's downstream drinks industry started to slow down in 2012
PET spot prices are being driven by upstream purified terephthalic acid (PTA) and monoethylene glycol (MEG) prices, extremely flexible operating rates from regional producers and lower overall operating ratios in Asia, excluding India, sources added.
Margins among PET bottle chip producers had been squeezed since mid-2012 and more losses were incurred in the last quarter of the year.
On average, operating ratios among major Chinese producers since September 2012 had been at 50-60%. South Korean producers were heard operating at around the same level or slightly higher for the last quarter of the year, while Taiwanese producers were heard to be running their plants at 70-80% during the same period.
Asian PET capacity is expected to rise in 2013, with the majority of the plant expansions concentrated in China.
China's Jiangsu Sanfangxiang is to bring a new 400,000 tonne/year PET bottle chip line on stream in March or April 2013. This will increase the producer's total capacity from 1.2m tonnes/year to around 1.6m tonnes/year, making it the largest PET producer in China.
A second greenfield Chinese PET bottle chip producer, Yisheng Petrochemical, is scheduled to start up a 1m tonne/year unit in Hainan and has targeted commercial production for it in May 2013.
However, a number of players doubted the feasibility of starting up a 1m tonne/year new plant, given the weak business conditions. They said they are not optimistic that the new PET unit will start up successfully.
"Around 30% of the newly added capacity will be directed to the export market, in line with the current strategy [among Chinese PET producers]," one northeast Asian producer said.
This is said to likely worsen the oversupply in the Asian PET bottle chip market.
In 2012, Asian supply outstripped demand by 5m tonnes, with regional supply totalling 11.4m tonnes/year and regional demand at 6.5m tonnes/year, a separate northeast Asian PET producer said.
However, one major northeast Asian PET producer said the downstream drinks and beverages industry is showing "signs of recovery".
"Although the global growth rate for the downstream industry is estimated at around 5-6% for the coming year, Asia can still expect a relatively healthy growth rate at around 12-15%," the producer added.
Overall demand in Asia is expected to exceed 7m tonnes/year in 2013, but the additional 0.5m tonnes/year increase will be easily offset by new nameplate capacity expansion totalling at least 1.4m tonnes/year in China, market sources said.
Many PET bottle chip producers are expected to remain flexible about their operating rates throughout 2013 to minimise losses, which are almost certain to occur.
"Overall operating ratios among Asian PET bottle chip producers will not exceed 80% throughout the entire 2013," one southeast Asia producer said.
The PET bottle chip market is expected to worsen in China, the largest economy in Asia.
"It would be lucky for PET producers in China to hit 70% operation," a Chinese PET producer said.
"The average operating ratios among Chinese PET producers were at 50% for November  and [the] supply-demand situation looked relatively well-balanced for the whole month."
The Chinese downstream drinks and beverages industry enjoyed a rapid growth of around 25% from 2007-2011, but started slowing down in 2012, according to market sources.
"A reasonable estimate of the growth rate for the drinks and beverages industry would be around 15% and this will not absorb the capacity increases," one Chinese PET producer said.
If the growth rate for the downstream sector remains at 15%, it will take at least 3-4 years to restore the market balance, a market source estimated.
"Most PET producers are prepared for a tough year ahead. After all, it is a cyclical business and [the producers] will just have to survive the next two to three years," one Chinese producer said.
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