Europe PET January mood influenced by contracts, imports and feedstocks

Author: Caroline Murray

2018/12/13

LONDON (ICIS)--The polyethylene terephthalate (PET) mood for January and therefore the freely negotiated prices in Europe will be influenced by conversion fee increases affecting contracts, import deliveries and feedstock moves.

- Higher conversion fees due in 2019

- Imports due into Europe in Q1

- Feedstock forecasts vary

Contracts
The new contracts based on conversion fees over raw material costs are due to come into effect in 2019, and other than those buyers waiting to the bitter end before settling, the majority have agreed to an increase compared to 2018.

Justification for higher raw material-plus contracts included rising conversion fee costs for upstream purified terephthalic acid (PTA).

“PTA has been the golden goose for PET producers this year in terms of 2019 contract negotiations,” a buyer said.

Freely negotiated prices have been on a downward trajectory since the end of the peak summer season, but may be reaching the bottom.

“Raw materials should increase or worst case for producers, roll over. Contracts should go up…because of the paraxylene (PX)/PTA [purified terephthalic acid] conversion increase. Spot PET will depend on demand, but fundamentals are for price increases,” a trader said.

Imports
Asian imports are heading to Europe in the first quarter, partly as buyer retaliation for PET producers’ targeted fee hikes.

Price-wise the end result may or may not benefit buyers, but as material was bought during a downtrend, in the lead up to December, imported purchases regularly looked expensive shortly after deals were concluded. The outcome will depend on market pricing at the time of arrival.

The latter part of the year has seen heightened influence of Asian price dynamics. So when December domestic prices dropped as Asia rebounded, the lines became blurred.

Even now it is difficult to access clarity of the situation, as the rebound in Asia may have been temporary. In recent days crude prices increased, yet monoethylene glycol (MEG) and PX remained weak.

Feedstocks
Europe often follows Asian feedstock price trends, and a significant decrease is widely expected for December PX and MEG, though nothing has been confirmed.

“If the PX in January will go up in Europe, it could be that the price of PET will go up a little bit, but I don’t it will be a big increase, more a rollover maybe. Some believe it will go down in January,” a buyer said.

This view was seconded by another buyer who added, “…Forecasts from my suppliers for PX and MEG are lower for January than expected for December…they expect additional decrease for January".

In the New Year there should be recovery from Indorama Ventures’ production problems in Rotterdam, The Netherlands, which led to a force majeure on PET. There is also likely to be import material arriving, subduing perhaps some customers’ appetite for domestic purchases.

As there have already been price and market mood swings in December, it is difficult to surmise what January will eventually bring. Logic does not always appear to be the PET forecaster's friend.

PET is used in fibres for clothing, containers and bottles for liquids and foods, thermoforming for manufacturing, and in combination with glass fibre for engineering resins.

Focus article by Caroline Murray