Unravelling China’s polyester market

By Malini Hariharan (Malini is now joint blogger for Asian Chemical Connections)

China’s immense appetite this year for all petrochemicals has been puzzling many of us. This blog has been regularly asking questions and some answeres for the polyester and PTA markets were provided by YJ Kim of PCI Xylenes & Polyesters at the Indian Petrochem 2009 conference earlier this week.

Kim pointed out that preparatory work for the Shanghai Expo in May 2010 was a major demand driver. The budget for the Expo is twice that of the Beijing Olympics in 2008.
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The Olympics is estimated to have created nearly 1m tonnes of polyester demand. So if you double the budget then surely polyester demand would be way above 1m tonnes.

If this is true for polyester I think it is also safe to assume that the Expo is also a major driver for polymer consumption.

Kim also observed that the a fall in transaction volumes at the Shaoxing textile market should not be interpreted as a decline in overall business as six more wholesale markets have sprung up in China, and there is even one in Xinjiang. The average daily trading volume at Shaoxing has fallen to 4-5m metres this year from a peak of 6m metres.

Here are a few other highlights from Kim’s very good presentation.

• China’s 2nd 10-Year West Development Plan will create another polyester boom. Production growth is likely to be around 7% for the next three years but will swing to double digit post 2011 once demand explodes in western China. Polyester production forecast for 2009 is 21.8m tonnes.
• Global PTA inventories are very low and the industry needs to build up stocks. In China, 18-21 days is the normal PTA stock level. But the market is currently living on less than two weeks inventory. If China rebuilds stocks by 500,000 tonnes over the next six months it could swing global operating rates by 2%.
• Firm PTA prices this year have been driven by a recovery in demand and involuntary production cuts due to shortage of paraxylene. PTA margins have been exceptionally strong this year
• China is likely to import nearly 6.5m tonnes of PTA in 2009 and would need to import around 6m tonnes annually for the next three years. The trade grid for PTA could change once China complete its antidumping investigation into PTA exports by South Korea and Thailand. A review has been completed but it appears that Korean and Thai producers are individually negotiating with the Chinese commerce ministry. If Korea is hit by antidumping duties it will be forced to look for new markets. India, the Middle East and Europe would be the likely targets. The Korea-EU free trade agreement is due to start from July 2010 which would allow for zero duty imports.

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