Market Intelligence: PET Latin America looks to Asia

24 May 2013 09:09  [Source: ICB]

Players in Latin America are looking to Asian markets for price direction. Markets have been weak in South America, while growth is slowing in Asia - and prices may erode further

Polyethylene terephthalate (PET) market participants in Latin America are ­monitoring volatile resin and feedstock prices in the Asian and US markets in an effort to provide direction for the third and fourth quarters.

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

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 at $1,230-1,625/tonne (€950-1,256/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 at $1,357-1,750/tonne.

Although Latin America is not a region 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 producers in Mexico usually follow 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 impact of 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 the 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 lower than ­expected throughout 2012 and 2013 - even for the peak soft drink seasons.

Although no single 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 a 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.

In Asia, overall demand growth for PET bottle-grade chips is expected to remain at 8%/year in the near term, industrial players said at the Asia Petrochemical Industry Conference in Taipei, Taiwan in mid-May.

"[The growth rate] in China, the largest market in Asia, has slowed from 12-15% three years back to around 8-9% now," said a northeast Asia producer.

"The current demand growth rate for PET bottle chip is estimated to be around 8% in Asia and 5-8% ­globally," said a global leader in the beverage industry, Coca Cola.

In the near term, PET market participants expected the growth rate to remain largely stable at a high single-digit level. However, in the medium term some players expected possible further declines in the key China ­market - the largest consumer base in Asia.

"There might be a possibility that [the] growth rate in China slows down further to around 6-7% in three years' time," a northeast Asia producer said.

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.

The effects of this downward pressure could also extend at least into July, according to regional market sources.

PET was offered in mid-May 2013 at $1,480-1,500/tonne CFR Pacific coast of South America.

Previous assessments for the region were at $1,570-1,600/tonne CFR 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.

Market participants in Latin America expect further price erosion through July, following weak resin and feedstock markets in Asia.

Even in Latin American countries with domestic PET production - which are 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, while March settled partially at $1,670/tonne CFR Asia, and February was 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.

Additional contribution from Yu Guo

By: Ron Coifman
+1 713 525 2653

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