Asia PTA to come under pressure when India adds capacity

Paul Lim

27-Jul-2015

PTA plant at Haldia, IndiaSINGAPORE (ICIS)–Asia’s purified terephthalic acid (PTA) industry will come under increasing pressure next year as India adds 2.3m tonnes to its production capacity in the first half of 2016, industry sources said.

Reliance Industries is targeting a September startup of its 1.1m tonne/year No 2 PTA in Dahej, while JBF Industries is targeting a first quarter 2016 startup for its 1.25m tonne/year PTA plant in the Mangalore Special Economic Zone.

Once these plants start up, India will have a PTA production capacity of 7.2m tonnes/year by the first half of 2016. Its existing PTA capacity stands at 4.9m tonnes/year.

On the other hand demand in India is estimated to remain flat next year at 5m tonnes/year, market source said. This would result in excess production capacity of about 2 m tonnes if plants operate at full rates.

This also means potential exports of 1m-2m tonnes/year, depending on finalized supply contracts with both domestic and overseas buyers, and the final amounts allocated for captive usage as well as operating rates in the country, sources said.

“India PTA producers will likely need to reduce run rates to about 70-80%,” an industry source said. “The need for CFR India import cargoes will also be reduced as producers start looking towards exporting PTA.”

Indian Oil Company also recently announced that it was keen on building a 1m tonne/year PTA unit at its Paradip refinery and expects to finish construction by 2020.

This is on top of its existing 550,000 tonne/year PTA unit already operating in Panipat, Haryana.

Indian PTA producers face limited choices of exports, with massive surplus capacity in Asia locking out markets there.

“It will be difficult to sell cargoes in Asia, especially in China. India-origin cargoes will have to move west if they are to be sold,” a source in India said.

Indian producers are now targeting Middle East as a potential outlet for PTA cargoes, going neck to neck with other Asia Pacific producers in an attempt to offload cargoes.

“One outlet we are considering is the Middle East,” a producer in India said, without disclosing specific buyers in that region. “The lower transit time needed to move cargoes from India to Middle East will be one of the advantages.”

However, the Middle East is considered fully saturated by PTA imports from South Korea, traders said, with South Korean producers already owning a large portion of the market share there.

South Korean producers are nevertheless concerned about the competitiveness India-origin cargoes could show.

“Given their physical proximity to the Middle East, as well as savings in term of freight and administrative costs, it would be important to keep an eye out for them,” a South Korean producer said.

Indian PTA market participants are now expecting a price correction in the latter part of this year, with the slow downstream demand from Indian polyester makers not helping sentiments much.

Prices are likely to feel some downwards pressure in the face of such excess capacity, sources said, with any buying interest quickly smothered by the supplies offered by producers and traders.

“There is little reason for prices to climb once the PTA units start up. It will most likely be a case of which producer can survive for the longest time while running at lower capacities,” a source in India said.

“Premiums which had been previously charged by producers will likely be diminished, or disappear completely,” an end-user said.

Asia PTA prices continued feeling the brunt of sluggish demand from end-users, dropping $14-15/tonne week on week. CFR China prices were assessed at $637-645/tonne 24 July, while CFR India prices were assessed at $657-683/tonne.

China PTA Trend
Click here to enlarge the graph of the trend in PTA prices for China and India

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

Focus article by Paul Lim

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