17 January 2013 19:50 [Source: ICB]
Polyethylene terephthalate (PET) producers in the Middle East may be forced to reduce operating rates this year to stave off margin pressures from rising feedstock costs amid a glut in global supply, industry sources say.
Some PET plants in the Gulf Cooperation Council (GCC) region have been on a turnaround in recent months, but average operating rates have been around 95% in 2012, industry sources said.
PET producers are getting squeezed
The GCC region comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
While on an uptrend, PET prices had been struggling to keep pace with the spike in feedstock costs. Demand has been soft as buying activity in the downstream beverage segment typically winds down during the winter.
Spot prices in the region were assessed at $1,560-1,600/tonne CFR (cost and freight) GCC in the week ended 10 January 2013, up by about 6% from the previous month, according to ICIS.
Prices of major feedstock monoethylene glycol (MEG) had increased by almost 12% month-on-month in the week ended 4 January, while those of purified terephthalic acid (PTA) - another feedstock for PET production - were up by 3.4%, the data showed. But on 10 January, the pace of increase slowed with MEG and PTA prices at $1,191.5/tonne CFR China and $1,192/tonne CFR China, only 3.6% and 4% up from a month earlier.
However, market players in the Middle East said they were worried that feedstock prices would spike again in the coming weeks, on the back of restocking ahead of the Lunar New Year holiday in China in the second week of February. There was also much anxiety about whether the current uptrend in the Middle East PET market could be sustained because of imminent oversupply and lacklustre demand.
"The Middle East will be awash with product because of new start-ups in Saudi Arabia and in Asia, which could unleash a price war," a producer said.
In the fourth quarter of 2012, an influx of competitively-priced cargoes from China had created a stand-off between Middle East suppliers and buyers, the producer said. Asian suppliers typically export to the Middle East when Asia is oversupplied, which was the case last year. Middle East suppliers, on the other hand, export a significant portion of their output to destinations such as Europe, the US, Africa and South America, where they can get better netbacks.
The total installed PET capacity in the GCC will increase to more than 2m tonnes/year in 2013, when the 420,000 tonne/year line of Saudi Arabian petrochemical major SABIC in Yanbu starts up in end-March, a company source said. The region's own demand, which is estimated at around 325,000 tonnes/year in 2013, just represents about 16% of the total, industry sources said.
In August 2012, GCC also saw a strong capacity addition, when Octal more than doubled its PET capacity to 927,000 tonnes/year at Salalah in Oman from 400,000 tonnes/year, previously. New PET lines coming on stream later this year in Egypt and Turkey will also compete with GCC producers for the European market.
In Egypt, a 440,000 tonne/year PET plant owned by India's Dhunseri Petrochem and Tea is due to start up this year.
Turkey's Koksan is due to start up its new 216,000 tonne/year PET plant in Gaziantep, Turkey, in April 2013, with 50% of the output targeted for captive use.
"The GCC producers will face a lot of competition from the Egyptian plant [which] enjoys greater proximity to Europe," said a Dubai-based trader.
GCC producers are getting anxious over two impending start-ups by Jiangsu Sanfangxiang and Yisheng Petrochemical that will add 1.4m tonne/year of PET capacity in China in the second quarter of 2013, market sources said.
Chinese cargoes had been a regular feature in the GCC PET import market in 2012 that had weighed down on prices of the material. Suppliers fear the same trend will persist this year. PET bottle grade converters in the mineral water and carbonated drinks segments in the Middle East are also bearish about the market prospects for 2013.
"Our margins have been under severe pressure in recent months because of rising PET resin costs, but we cannot reduce operating rates as we have customer commitments to fulfil," said a PET converter based in the GCC.
The converter projected resin costs at $1,600-1,750/tonne CFR GCC in for 2013. "We are hoping prices will come down later this year so that we can we can average out positive margins for the whole year," he added.
Offers for PET in the GCC were higher in the current week at $1,560/tonne CFR GCC, with buying ideas at $1,500/tonne CFR GCC.
PET prices in the region rose by $70/tonne from a month earlier in the week ended 3 January to $1,500-1,540/tonne CFR (cost and freight) GCC, ICIS pricing data showed.
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