Asia PET at 21-week high on firm demand, rising feedstock costs

Focus article by Michelle Lim

SINGAPORE (ICIS)–Spot prices of bottle-grade polyethylene terephthalate (PET) in Asia may extend gains after hitting a 21-week high on the back of improved demand from bottle makers in the run-up to the summer season, industry sources said on Tuesday.

Rising costs of feedstocks purified terephthalic acid (PTA) and monoethylene glycol (MEG) have also been supporting the PET market, they said.

On 24 April, PET prices were assessed at $1,110/tonne FOB (free on board) China, according to ICIS data.

Market sources expect prices to beat $1,125/tonne FOB China recorded on 28 November last year. Prices have been largely on an uptrend since end-January. (Please see price graph below)

Prices of feedstock PTA have also been strong since the start of April, posting cumulative gains of more than $100/tonne. Co-feedstock MEG prices have likewise been on an uptrend, racking up $224.50/tonne of gains over a five-week period to $1,015/tonne CFR China on 27 April, according to ICIS data.

PTA and MEG prices are being driven by the strong upstream paraxylene (PX) market amid supply concerns following unplanned shutdowns at plants across three products in China.

An explosion on 7 April shut down Dragon Aromatics’ two 800,000 tonne/year PX facilities in Fujian, hitting production at Xianglu Petrochemical’s 4.5m tonne/year PTA plant in the province.

In Jiangsu province, another blast at Yangzi Petrochemical’s production site on 21 April has shut the company’s two MEG plants that have a combined capacity of 280,000 tonnes/year and its downstream 650,000 tonne/year PTA plant, further fuelling the upward momentum in MEG and PTA prices, market sources said.

Taking into account thinning margins because of rising feedstock costs, PET producers said they had to raise prices.

While some buyers resisted the price hikes, others were keen to secure spot purchases given expectations that prices could increase further in the coming weeks.

“We were still cautious about buying after the first blast incident, hoping that perhaps the effect on feedstock prices might be short-lived, a southeast Asian buyer said.

“But after the second blast incident, it became quite clear to us that PET could go even higher, at least for April and May. I’m glad I bought something before it went up even more,” the buyer said.

In June, PET’s price direction seems less clear for now, but feedstock prices appeared well-supported in the near term as market participants largely expected the plant outages to be somewhat prolonged.

Asian PET producers are hoping for export opportunities into Europe, where domestic prices have also been firming and were expected to remain the case for May. This could present some arbitrage trade opportunities despite the weak euro.

Many Asian sellers were gunning for spot deals to be closed and shipped to Europe by June, before a good number of European market players take off for their summer vacation.

But some producers in Asia are worried that April would not be a profitable month for business, despite active market discussions and no lack of deals done due to healthy seasonal demand.

“We can only hope we’re not selling our PET too cheaply because feedstock prices keep rising. It may appear we’re selling high now but we could actually be incurring negative margins if feedstock prices go up too much,” a seller said.

Nevertheless, market sentiment for PET remains bullish for now.

Another seller said: “This is the best time to raise prices. You have healthy demand for summer, coupled with two plant blast for feedstock in a row. If not now, when?”

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