By John Richardson
WHEN is a recovery a sustainable recovery? This a key question for chemicals companies as they prepare their budgets for 2014.
What has happened this year in both polyethylene (PE) and the polyester chain has surprised some people.
China’s polyester demand was higher than expected in July and August, leading to a big recovery in purified terepththalic acid (PTA) prices (see the above chart) and margins, says our excellent ICIS pricing Asia fibre intermediates editor, Becky Zhang.
Although PTA prices have since fallen back, this could be explained by the end of China’s peak manufacturing season.
Stronger polyester demand has been attributed by some market players to better-than-expected textiles and garment orders from the West for the Christmas season – ergo, perhaps, a strong cyclical recovery in Western economies that will support all sorts of businesses through 2014.
But maybe a more important reason why PTA has enjoyed a “sweet spot” is a lull in capacity expansions in China. After Yisheng Petrochemical started-up in January, the next scheduled start-up isn’t until towards the end of this year, perhaps in October or November. This is when the 4.5m tonnes/year Xianglu Petrochemical plant is expected to be commissioned, says Becky.
Meanwhile, during this lull, downstream polyester expansions have continued apace, with 3.75m tonnes/year added in China and a further 1m tonnes/year in India, adds Becky.
Next year, sadly, is a different proposition altogether. Becky estimates that 10m tonnes/year of more PTA will be added in China and 2.2m tonnes/year in India.
The blog is also worried that the availability of financing in China has been a key factor in the recovery in PTA and other chemicals and polymers. There is a fairly good chance that liquidity will be tightened in China in 2014.
And the long-term fundamentals for the textiles and garments industry in China might be very challenging.
This is only one scenario, of course, and we could very easily be wrong. We would love to hear other views.