FocusAsia PTA recovery could end soon

09 July 2007 04:07  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Purified terephthalic acid (PTA) producers are seeing a recovery in margins in Asia after a dismal June, but this could end as early as later this week as traders seek to offload cargoes on hand, buyers and sellers said.

Things were beginning to look better for producers last week, when spot prices managed to recover towards the $915/tonne CFR (cost and freight) China level. Some contract customers were also heard agreeing to offtake at a tentative $930-940/tonne CFR China, with promises of rebates if spot prices fall back.

"Based on the July [PX] contract price of $1,130/tonne [CFR Asia], PTA producers selling at $930/tonne [CFR China] should be profitable," said an official from BP, the largest PTA producer in Asia.

An agent for KP Chemical, one of the largest PTA producers in South Korea, said: "We’re trying very hard to move as much volumes as we can, as we don’t know when the price uptrend will end and we don’t want to be caught unaware."

Such words were telling, as many observers agreed that the uptrend might not last till the end of the month, with some speculating that prices could dip again as early as this week.

PTA prices stalled at around $960/tonne CFR (cost and freight) China at end-May, after more than 11 weeks of consecutive gains. It was a much different picture in June, with prices dipping from $940-950/tonne CFR at the beginning of the month to $895-900/tonne CFR at end-June.

"Basically, we made a loss in June, and I think there was no exception among any producer in Asia," said a company official from Tuntex Petrochemical, a Taiwanese producer.

Feedstock paraxylene (PX) costs were at $1,245/tonne CFR Asia for June, while spot prices were way above $1,300/tonne CFR Taiwan earlier in the month. That translated into a loss of at least $40/tonne for PTA producers based on the lowest PTA price of $895/tonne.

"The production cuts over the past two months did not seem enough to arrest the oversupply in the market, said an official from Yisheng Petrochemical, a Chinese PTA producer.

"We all know PTA was in oversupply, especially amid this seasonal lull [for polyesters] but somehow, the determination to slash operations was not really there."

Between May and this week, almost all Asian PTA producers outside China had either stopped production at one time or another, or reduced output due to the poor economics. But the net market effect seemed to be marginal.

"The bottomline is, the Chinese plants are still running and regardless of what happens in Taiwan, Korea or Indonesia, the Chinese [consumer] can still easily get his PTA next door if he wants to," said a trader with Samsung Corp, one of the largest PTA traders in Asia.

And one new line, the 530,000 tonne/year unit by Liaoyang Petrochemical, started up in the northeastern part of China in June and had joined the already crowded market with highly competitive offers.

Formosa Chemical and Fiber Corp (FCFC) could start up its new 600,000 tonne/year unit at the eastern Chinese port-city of Ningbo anytime soon, once the Chinese government gives the final nod for the project. And BP Zhuhai would start up its 900,000 tonne/year plant in southern Guangdong province in November, less than one month after Taekwang Industrial starts up its new unit in Korea.

"Yes, the polycondensation capacities are increasing, but the PTA [capacity] increase is much faster. I simply don’t see why PTA prices could keep increasing," said a Beijing-based trader with China Chem.

An official with Yixing Ming Yang Polyester said: "Look at it this way, the domestic price [of PTA] had not gone beyond [yuan or CNY] 8,400/tonne [ex-warehouse] since early June, and actually fell towards CNY8,200/tonne two weeks ago.

"Translated into US dollar terms, that’s no more than $880/tonne. Anybody who knows how to do his sums will try his best to buy from the domestic market, and avoid imported PTA," added the Ming Yang official, who believed that prices could touch $920/tonne CFR China at best and fall back to below the psychologically important level of $900/tonne CFR China soon.

Sharing this view was a trader with Korean company BCF Trading.

"I’m not holding much hope, and will offload as much as I can [this week]. I know there’re still lots of July cargoes in the hands of traders, and once they show [their lots], prices can fall back again," he said.

ICIS Copyright © Reed Business Information 2009

Author: Salmon Aidan Lee
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