Europe PET softens but warmer weather could prop up prices

Author: Caroline Murray

2019/05/24

LONDON (ICIS)--Polyethylene terephthalate (PET) prices in Europe continue to soften amiddisappointing offtake but, if customers have been surviving off stocks, better demand thanks to warmer weather could send them back to their domestic suppliers for more.

- Room for a summer price boost

- Asian imports become attractive again

- Macroeconomics a concern for decision makers

rexfeatures_3715917aPRICES
Bottlers and preformers have been gradually reducing stock in a market where prices are slipping globally, so are reluctant to buy spot.

“The only positive is that when companies expect falling prices, the pipeline empties. If a prolonged heatwave happens, we may see a panic…,” a source said.

Warm weather encourages the sale of bottled water in particular, and a long stretch could bring the market back in line with more normal conditions, stability at the very least.

The cost of production is expected to drop in May. There is a confirmed monoethylene glycol(MEG) contract price easing of €20/tonne from April, and there has been contention of paraxylene (PX) for much of May.

It will take a significant fall in PX to satisfy the PET industry, which is still struggling to comprehend an eventual rollover in April when so many thought it would decrease and align more with Asia.

A similar surprise in May would likely put the breaks on PET prices declining further. That said, while new PX capacities in dominant Asia prompted heralded weaker prices, forthcoming shutdowns have resulted in a recent change of direction.

Some sources are expecting a downward step change in Europe over May and June, if only to compensate for earlier settlements.

Even if raw materials do decrease, spot is likely to be more enticing for buyers than contract at this stage. It has been for a while now.

January and February are often slower months but, come the spring, and the scene is normally set for increased offtake.

This year has been different. The weeks and months that sellers have spent hoping for better business conditions have added to the downward pressure already present across the value chain.


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IMPORTS
There is statistical evidence of vast quantities of imports having entered Europe and still destined for European shores. This has put a noticeable dampener on domestic sales thus far.

After a brief period of uncompetitive prices from Asia, importers, particularly from China, are back with tempting offers.

Anything bought now though will be for June lifting, potentially providing an opportunity for domestic sellers to make back what they lost both in terms of money and offtake.

After all, if PET demand is hot and pre-bought stocks have been used, the cost of raw materials will be of little consequence when it comes to pricing the product.

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MACROECONOMICS
There remains an undercurrent of doom surrounding the economy, which lessens conviction as to what actually lies ahead.

The concern is that it is not just PET that is experiencing depressed conditions, it runs through the chain and the plastics industry.

Normally, threats of disruptions in the Middle East would result in rocketing crude prices, but this hasn’t happened.

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The worse-case scenario would be if stocks remain high enough in June for the PET chain to reduce output, resulting potentially in customers defaulting on their PET contracts, and PET producers doing the same to their PTA suppliers, a second source said.

At the end of the day, there are multiple theories out there as to what is likely or less likely to happen, but the caveat is usually that whatever one thinks will happen could be the opposite of what eventually does happen.

PET resins can be broadly classified into bottle, fibre or film grade, named according to the downstream applications.

Bottle-grade resin is the most commonly traded form of PET resin and it is used in bottle and container packaging through blow moulding and thermoforming.

Fibre grade resin goes into making polyester fibre, while film grade resin is used in electrical and flexible packaging applications. PET can be compounded with glass fibre for the production of engineering plastics.

Picture source: Source: imageBROKER/REX/Shutterstock

Focus article by Caroline Murray