INSIGHT: Hopes for a revival of peak PET summer sales in Europe evaporate

Author: Caroline Murray

2020/05/04

LONDON (ICIS)--Demand for polyethylene terephthalate (PET) soared in Europe in the first quarter, but come May and buyers’ appetite is subsiding as end users work through their PET-packaged food, water, hygiene and cleaning related stocks.

This is perhaps the reason why buyers are not bulk buying as much as they did when the lockdowns across Europe began.

“Demand is beginning to calm down,” a producer said.

He added that while there are pros and cons to what lies ahead for the summer, the EU is likely to register a decrease in the PET market of around 5% year on year.

The question is whether or not demand will reignite with this summer’s potential relaxation of lockdowns.

Already crude oil has been creeping up since its collapse a matter of days ago.

“The [PET] price is going up because the economy is restarting and oil has changed. I’m not sure how long the trend will continue,” a seller said.

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There are sectors of the industry that have done particularly badly like carbonated soft drinks (CSD), smaller bottles, luxury foods.

These end sectors may revive in coming months, but with a bearish economy and the loss of jobs this brings any uptick would be minimal.

Demand for packaged goods was relatively strong in March due to the pantry stocking as a result of looming coronavirus lockdowns, as well as the typical increase in sales ahead of the warmer months.

The high level of requirements for PET resin, however, was an anomaly against many other polymers.

The European domestic market is being somewhat protected by global logistical challenges, which are limiting the delivery of often cheaper imports.

Any presence of lower Asian prices should therefore present less of a threat over the next few months.

BEVERAGES: BADLY HIT
As coronavirus-related restrictions are expected to ease in the second half of 2020, PET imports should once again become more prominent in negotiations.

Beverage sales are significantly down in April and expected to be so for May as a result of the complete halt in tourism and the social restrictions set across Europe, both limiting the out-of-home sales.

European beverages major Nestle posted a decline in sales of 6.2% already in the first quarter, year on year, while US major Coca-Cola posted a 1% decrease, adding that Q2 was also to be impacted.

Sales volumes in April stood around 25% lower than in the same month of 2019, Coca-Cola added.

Europe's Danone posted an increase in overall sales in the first quarter, but sales at its division for PET-intensive bottled water posted a fall of 6.8%, year on year.

Considering lockdowns may still remain in place for most of May and potentially June, we can expect a worse outcome for beverages in Q2 and practically muted demand for PET in the summer.

Recent PET prices were quoted in a €100/tonne range, with some talking of decreases, while others heralded increases.

Sellers are not necessarily adopting similar pricing strategies, as the uncertainties are so vast and the broader situation so volatile.

Because of rapidly changing global developments, there were plenty of purchases made in April for May when April looked like it could be the lowest priced month. Whether this interest continues is the big question everybody seems to have an opinion on.

To avoid risk, many buyers have stayed loyal to domestic suppliers who are also still garnering support from customers, by individually competing with import prices.

Hedging and buying forward seemed an attractive option while prices are at these historical lows, but selling vast quantities now for later may slash demand in due course.

UNCERTAIN WORLD 
“In the second half of the year the price could go up a bit. To keep very low prices for PET producers it's risky because by the second half of the year [they] won’t have sales if everyone buys big quantities believing it's a really low price,” a customer said.

That said, some buyers consider it too risky to buy ahead in whatever form, as the world is in such chaos there is no guarantee which businesses will survive.

The eventual recovery of PET will either sky rocket or take place gradually, depending on source.

“Demand is when people get back to work - if that’s within the next few months, prices [could go] through roof," a trader said.

"There is an oversupply of [feedstock] MEG [monoethylene glycol] and, with tanks full, they will shut capacity. This is an interruption in the whole chain and when it comes back, once boats are empty, prices will spike at one point: Consumer have to start buying again," it added.

Buyers and sellers alike consider the collapsing economy as a major factor in the overall diminishing growth of PET in 2020.

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 picture source: Helmut Meyer Zur/Capellen/imageBROKER/Shutterstock

Insight by Caroline Murray, Europe PET Editor, and Susan Mair, Petrochemicals Analyst