INSIGHT: PET Latin America - looking to Asia for direction

21 May 2013 16:10  [Source: ICIS news]

By Ron Coifman

HOUSTON (ICIS)--Polyethylene terephthalate (PET) participants in Latin America are monitoring volatile resin and feedstock prices in Asian and US markets in efforts to project direction for the third and fourth quarters, according to input from regional sources.

Participants note that Latin American markets usually lag Asian developments by several weeks, but direction in Asia and Latin America for the near future remains elusive.

As a reference for Asia, average bottle-grade PET spot prices since January 2012 on an FOB (free on board) Korea basis have been assessed as high as $1,625/tonne (€1,268/tonne) and as low as $1,230/tonne.

As a reference for Asian imports into Latin America, average bottle-grade PET spot prices since January 2012 on a CFR (cost and freight) Chile basis have been assessed as high as $1,750/tonne and as low as $1,357/tonne.

Although Latin America is not a monolith where all countries react to global market forces in exactly the same way or at the same time, there is a commonality in the region’s response to dynamics in other regions, particularly in Asia. In the past few months, PET prices in Latin America have weakened, tracking developments in Asia.

However, despite the focus on Asia to gauge regional trends in the Americas, local factors also play a role in Latin American markets.

PET producer Mexico usually follows the neighbouring US market closely. Brazil and Argentina, also PET-producing countries, are closely aligned with each other and show some independence from other external markets, although they also trend in line with Asia. Even in these Latin American countries, which are less directly exposed to dynamics from Asia because domestic production dampens the volatility in global markets, PET prices have been weakening, although more gradually.

Countries on the Pacific coast of South America are influenced more immediately by Asian PET markets because resin consumers rely on imports to fulfil requirements. Although Colombia produces some PET, the country remains a net PET importer.

Demand varies depending on hemisphere, with North America including Mexico now entering the peak soft-drink season on approach of summer, while in South America, particularly in Argentina and Brazil, the high season has already ended as colder weather sets in.

PET demand in Latin America has been slower than expected throughout 2012 and 2013 even for the peak soft-drink seasons.

Although no one cause was named as the key driver for soft demand in Latin America, regional sources pointed to several possibilities, such as reduced purchasing power, lower soft drink consumption because of health concerns, reuse of PET bottles, weak regional economies, slowing growth rates in China, greater use of recycled PET and soft polyester fibre business.

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 plentiful supply of resin for the fibre and bottle markets, globally soft demand for textiles and bottled soft drinks, slowing growth in China, the eurozone economic crisis and satisfactory cotton crops which could otherwise require polyester resin as a substitute in yarn production.

The drop in prices of PET and upstream purified terephthalic acid (PTA) and paraxylene (PX) in Asia in recent months continues to place downward pressure on the PET sector in Latin America in May, and the effect could extend at least into July, according to regional market sources. 

PET was offered in mid-May 2013 at $1,480-1,500/tonne CFR (cost and freight) Pacific coast of South America. Previous assessments for the region were at $1,570-1,600/tonne CFR Pacific coast of South America in May 2012, $1,730-1,780/tonne CFR in February 2012 and $2,040-2,100/tonne CFR Pacific coast of South America in April 2011.

Participants in Latin America expect further price erosion through July, lagging weak resin and feedstock markets in Asia. Even in Latin American countries with domestic PET production and less directly exposed to dynamics from Asia, prices are also trending down, although more gradually.    

In Argentina, domestic PET prices for May dropped by $70/tonne, but rolled over in Brazil and Mexico.

Participants in Latin America and around the world continue to monitor the Asian Contract Price (ACP) and spot prices for PX as key drivers for the PET market around the world. The PX ACP did not settle on an industry-wide basis for May. The April PX ACP settled fully at $1,400/tonne CFR Asia. March settled partially at $1,670/tonne CFR Asia, and February settled fully at $1,685/tonne CFR Asia.

In the Asian spot market, PX prices were assessed on 10 May at $1,445-1,450/tonne FOB Taiwan/China Main Port (CMP), down from $1,705-1,712/tonne FCR Taiwan/CMP on 8 February.

($1 = €0.78)

By: Ron Coifman
+1 713 525 2653

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