INSIGHT: Europe PET, PTA challenged by Asian volatility, weather, sustainability and politics

Author: Caroline Murray

2019/08/15

LONDON (ICIS)--The European polyethylene terephthalate (PET) and upstream purified terephthalic acid (PTA) markets will continue to be challenged by supply and demand, which in turn is heavily impacted by the bigger, unpredictable, global picture.

- Upstream volatility, particularly in Asia

- Unusual weather patterns affect demand

 - Virgin PET and the road to sustainability

ASIA
The most recent moving goal posts in influential Asian markets saw prices up the PET value chain plummet in early August, before soaring again overnight.

This was in reaction to crude oil prices rising steeply after the US delayed and decreased some of the tariffs President Donald Trump had planned to impose on goods from China on 1 September.

By midday on Thursday, however, crude oil prices were losing ground on global recession fears.

The ongoing trade war has dampened global demand, and the plastics are caught up in the chaos.

Europe hosted an unusually high concentration of PET imports in H1 2019, as buyers reacted to supply constraints of the previous year.

PET output has been reduced as a consequence of dulled demand for local material, so the market should in theory balance out.

The PTA market reacted by a surge in export activity, as the market tried to re-balance.

This too has since dwindled, although remains high at least until prices changed direction in Asia this week.

While Europeans bought Asian PET on the cheap, much of it ended up being more costly than local material on arrival.

"Customers learnt from that and, knowing the current market conditions, they will look more carefully at those big volume imports, which has to also help local PET production and so, local PTA demand," a PTA source said.

The PET imports may have subsidised, but prices in H1 August were too competitive for some buyers to ignore, at least until mid-month.

Even domestic product is selling at what both sides consider to be low prices in the low €900s/tonne FD (free delivered) Europe, because of full warehouses and a weaker pull on volumes than normal.

Converters continue to hold onto what now looks like expensive imported material brought in earlier in the year.

This is despite reduced operating rates at some plants across Europe, and a force majeure in Lithuania.

The requirements for additional volumes that are normally sought after in the hot, summer months, are simply not there this year.

WEATHER
The weather is a traditional indicator for PET demand, but it has been so varied and, unlike previous years, that offtake has failed to rise to normal levels.

There was a slow start to the warm summer months, and when the weather did eventually heat up, it was sporadic both in terms of temperature and location.

R-PET
Add to that the rapid trend towards using recycled PET (R-PET) and the market is really wading through unchartered territory.

For some PET buyers this has meant moving away from virgin PET and becoming more involved in R-PET.

But the lack of flake R-PET availability has pushed prices above those of virgin PET, so customers are reverting to using the latter.

“…The strap and sheet industry … switched from R-PET for flakes to virgin PET, because it is much cheaper than flake,” a PET buyer said.

With R-PET food-grade pellet (FGP) supply in Europe currently standing at around 300,000 tonnes/year - approximately 9% of overall plastic bottle demand - demand is outpacing availability.

Substitution trends - PET and R-PET

ICIS Editorial Chart goes here

 

So it is still swings and roundabouts for the European PET and PTA markets, which are no strangers to the element of surprise.

“Besides the significant amount of imports earlier this year, other drivers of slow virgin PET demand are the 'War On Plastics', increased utilisation of R-PET, bad weather during May and June, and also the US-China trade war is really impacting the mood now,” a supplier of PET said.

How all the above as well as political, environmental and economic events will influence 2020 contractual discussions is as yet unclear.

Negotiations should start in September/October and will likely take into consideration past events and growing, global upstream capacity.

Parties involved will also no doubt have the unenviable task of forecasting the unpredictable, bigger picture and what effect it is likely to have on the PET value chain.

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: Rungroj Yongrit/EPA-EFE/Shutterstock

By Caroline Murray