Asia PTA dips after recent spike; tight supply to buoy up prices

Source: ICIS News

2017/07/21

China garment factory 21 July

SINGAPORE (ICIS)--Spot purified terephthalic acid (PTA) prices in Asia were stable to lower this week after a recent spike, but will remain supported by tight supply and low inventory in the key China market.

On 21 July, bids were at $630/tonne CFR (cost and freight) CMP (China Main Port), while offers were at $650/tonne for both import and domestic US dollar-denominated cargoes, largely stable from the previous day’s average of $642.50/tonne CFR CMP.

For five straight days from 10 July, PTA prices had gained $38/tonne or 6.3% before stabilizing on 18 July and dipping on 20 July.

Acute PTA shortages in the Chinese market saw the product’s spread over feedstock paraxylene (PX) widen to $100-130/tonne in recent weeks.

A major producer was on a buying spree, booking large quantities of both Chinese yuan-denominated and US dollar-denominated volumes. An estimated 100,000 tonnes of spot PTA volumes have been booked, according to market sources, and the purchases are expected to continue in the near term.

Sellers, on the other hand, were withholding cargoes as they were expecting a bullish price trend, and mulling offers on a formula basis to maximise profits.

Downstream polyester and non-polyester producers were out in the market, looking for end-July and August-loading cargoes.

But buyers were being forced to buy at high prices since only August-loading cargoes are available in the market. Chinese buyers have even sent enquiries to south Asia – a rarity in Asia’s PTA market.

Key market participants with short positions were covering their requirements with spot purchases, while they have an over-exposure in the futures market. They were also unable to roll over their futures contracts due to a backwardated market, in which the forward price is lower than prompt price of PTA cargoes.

Tight supply amid robust downstream demand should continue to support PTA prices in the near term despite recent slips. Inventory levels were at historically low level, exerting upward pressure on prices, industry sources said.

Operating rates at downstream polyester units are currently high, while availability of contractual PTA volumes from key producers are limited amid plant shutdowns.

Major Chinese producer Hengli Petrochemical is targeting to restart its 2.2m tonne/year No 1 purified terephthalic acid (PTA) line at Dalian in the first half of August, after about 40 days of maintenance. The shutdown was extended because of technical issues.

It estimated production loss of about 150,000 tonnes from the shutdown and will, consequently, reduce its August contractual volumes to end-users.

Another Chinese producer, Hanbang Petrochemical, is attempting to restart its 2.2m tonne/year PTA plant in Jiangyin as soon as possible given favourable spreads over feedstock PX. Half of the capacity is currently in operation.

In the third quarter, other major PTA plants are expected to undergo turnaround, including Jiangsu Sanfangxiang Group’s two 1.2m tonne/year plants and Shenghong Petrochemical's 1.5m tonne/year plant.

Meanwhile, Jialong Petrochemical is looking at restarting its 600,000 tonne/year PTA line by the end of the month. It was shut on 10 July due to a mechanical issue.

In the PTA futures market, warehouse receipts on 19 July stood at 732,955 tonnes, down 3.4% from 14 July. Futures warehouse inventory levels are decreasing, based on positions held by key PTA producers including Yisheng Petrochemical, Hengli Petrochemical and Hanbang Petrochemical.

Focus article by Paul Lim

Asia PTA 21 July

Pictured above: A garment factory in Huaibei city in east China. The textile industry is the main downstream sector of purified terephthalic acid (PTA). (Source: ImagineChina/REX/Shutterstock)