China’s Polyester Crisis: The Global Implications

ChinaPTAJan-July2014

By John Richardson

EVERYWHERE you turn it looks bad in China, especially in the polyester value chain.

“So has it always been in polyester. Because of its ownership structure, capacities up and down the chain are often out of sync,” said an industry observer.

“Hence, the current big overhang in purified terephthalic acid (PTA) capacity in China, along with a shortage of paraxylene (PX)  feedstock, is nothing new. The PTA producers are often not integrated all the way through to PX,  and so nearly always misjudge the timing of their expansion. The same happens in  PX for time to time.

“Also in PTA and in PX, capacity is often added ahead of demand, but demand pretty quickly catches up. In a couple of years in China, we might well be back to normal.”

Sorry, no, we respectfully disagree.

Let us look at the data, first of all. This indicates the scale of the supply overhang in PTA. According to ICIS Consulting:

  • China’s PTA capacity totalled 31m tonnes/year in 2013 against real consumption of 27.8m tonnes.
  •  In 2014, capacity is forecast to rise to no less than 43.7m tonnes/year, with consumption at just 29.5m tonnes (real consumption is demand adjusted for inventory distortions).

This historically big overhang might have been fine if China’s real economic growth rate was still close to 10% per year. But this is no longer the case.

We have entered a period of  lower growth and the kind of macroeconomic uncertainty that most of us have never experienced before.  This applies both to China and the rest of the global economy.

Returning to the data, the chart above shows us that:

  • China’s PTA imports declined to 833,000 tonnes in January-July 2014 compared with 1.75m tonnes during the same period last year.
  • Meanwhile, exports have risen to 272,000 tonnes from 46,000 tonnes.

This dramatic shift in trade flows has occurred despite low operating rates in China. The country’s PTA plants have been running at operating rates of around 60% for several  months.

What does all of this mean for the global PX-PTA industry?

This will be one of the key themes of our free webinar on Tuesday 9 September – China Economic Transformation 11.

Please click here to register  for one of our two sessions in the European/Americas and Asian time zones.

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