Europe PTA, PET benefit from lockdowns but threat from fragile economies looms large

Author: Caroline Murray

2020/04/27

LONDON (ICIS)--There has been a pull on purified terephthalic acid (PTA) from downstream polyethylene terephthalate (PET) applications that are considered essential amid the pandemic, but the tide may be turning despite imminent peak season.

Continued reliance on food products and water packaged in PET during lockdowns caused by the coronavirus pandemic has placed the value chain in one of the essential sectors that have kept operating.

However, the status of 'privileged sector' is being diffused by crashing upstream prices and economic turmoil.

Hedging and fixed pricing are back on the agenda, even for 2021, as PET prices are so low.

While there remains uncertainty as to what lies ahead and how this crisis will impact the industry in the medium term, low prices are just too tempting for certain buyers, and sellers will be looking at ways to secure commitments.

That said, the current environment and the outlook in general makes hedging, fixed price buying and general pre-buying a risky affair.

As it stands, limited socialising and no tourism to depend on, buying now for companies that may not thrive or even survive this crisis is not an appealing proposition.

"We are having many discussions with customers who think it is a good time to lock in for 2021, but there are pre-buy concerns about the liquidity of customers," a PET resin buyer said.

"We don't want to get caught with stocks."

These are key factors in the traditional summer success of PET sales, and buyers and sellers are becoming wary of what demand may look like going forward.

For some, this even includes concerns for May and June.

"You always have different opinions but at the moment they are just so wide. There are those that think with negative territory on oil now passed, things can only get better because of lockdowns easing. That's one group," said a reseller.

"The other group says there was extraordinary demand because of lockdowns and because people thought April would be the lowest prices, and they were all replenishing inventories, and now for the next few months we shall see the consequences with companies going bust, less consumptions, maybe no holidays or events or festivals taking place."

There are buyers that are cancelling orders, some supermarkets are understood to be putting the brakes on and world leaders are talking about extending predictions of when a sense of normality will return.

Notwithstanding, PET maintains its priority status in the pandemic, largely through thermoforming, but there are PET products that are suffering such as carbonated soft drinks (CSD) and high-end foods.

Even bottled water is experiencing the effects of society locking down, although consumers on the continent have been bulk buying the larger 1 litre and 1.5 litre bottles.

Also, hand sanitiser producers are not so fussy about what bottles they use nowadays.

The high cost of recycled PET (R-PET) has created a renaissance in demand for virgin material, with frequent mention of R-PET users reverting to a 70:30 purchase power in favour of virgin.

"I have bought virgin PET like never before, because of the [high] flake price ... I bought for the next few months from Europe and Asia," a sheet producer said.

Imports are far fewer than they were at the same time in 2019, partly due to domestic producers individually keeping their prices competitive with PET from other regions.

"With these dynamics the good thing is that on the short to medium term, imports to Europe have reduced drastically compared 2019," a PET producer said.

This is why domestic prices are have been holding more so than in other markets, but there are cracks beginning to emerge - whether these grow or not is a different matter.

Downstream spread - PTA and PET Europe

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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.

Front page image source: Keystone-SDA/Shutterstock 

Focus article by Caroline Murray