Asia PTA oversupply keeps downward pressure on prices

Focus article by Samuel Wong

SINGAPORE (ICIS)–An oversupply of purified terephthalic acid (PTA) in Asia will likely continue to weigh down on spot prices of the material in the near term, industry sources said on Friday.

On 11 March, spot PTA prices were assessed at $630-640/tonne CFR (cost & freight) CMP (China Main Port), down by $6/tonne at the low of the range compared with 9 March levels, ICIS data showed.

Downstream demand in the polyester markets has remained weak and may not recover in the near term. Demand is seasonally strong going in April, market sources said.

The average sales-to-output ratio in China’s polyester sector stood at 30-70% on 10 March, according to ICIS data.

A figure less  than 100% indicates an inventory build-up, as production exceeds sales volume.

There was a build-up of PTA inventories in the key China market last month, as domestic producers have maintained their operating rates while there were production cutbacks at downstream polyester facilities, market sources said.

China’s PTA facilities ran at an average rate of 74% in February and are currently operating at a slightly higher rate of around 76%, according to ICIS data.

Against the backdrop of weak buying interest for spot PTA cargoes, excess stocks are currently being diverted into the futures markets, market sources said.

“Inventories for May settlement PTA futures (PTA1505) are constantly building up, a PTA trader said.

“When it is time for the settlement for physical delivery, the market will be flooded with cargoes if polyester demand remains flat,” the trader said.

PTA inventories in the key China markets are currently at around 2.4m tonnes, twice as big compared with normal levels of 1.2m-1.4m, according to market participants.

But steep declines in prices of US-denominated PTA cargoes might be capped, given the narrow price spread the material has over feedstock paraxylene (PX), market sources said.

On 10 March, the spread between feedstock PX and PTA stood at $65/tonne, with the typical breakeven spread estimated at around $100-120/tonne, according to ICIS data.

“There are fewer movements of regional cargoes into China, as cargoes were able to be moved to other countries at better prices,” a northeast Asia based PTA producer said.

Faced with squeezed margins, a number of PTA makers were considering cutting production to balance supply and demand, market sources said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections