EPCA '20: Europe PET shutdowns, upstream chaos, debatable demand all make for an interesting Q4 ahead

Author: Caroline Murray

2020/10/06

LONDON (ICIS)--To regular participants in the Europe polyethylene terephthalate (PET) market, it will come as no surprise that there have been a host of unexpected occurrences, which have sent PET off on a tangent going into the fourth quarter.

Food, beverage and now hand sanitizer markets are reliant on PET packaging, making it an essential product in daily life.

A global pandemic challenged this concept, but PET weathered the storm better than many other products. Yet its impact, coupled with macroeconomic and geopolitical uncertainties, continues to challenge the PET value chain.

The end of the summer also marks the end of the traditional high season for PET. Expectations had been for the market to then plateau.

Demand was likely to drop, albeit not from a great height as while many experienced lighter lockdown restrictions during the warmer months, millions of bottle sales, particularly small bottles and for carbonated soft drinks (CSD), were lost because of mass events being cancelled.

Imports were also due in on the September/October cusp, following a window of opportunity created by a strengthening euro versus the US dollar, which heightened buyers’ appetite for product.

“Some imports are arriving into Europe. At some point the gap between Asia and Europe was big enough to take the risk. It’s the end of the season… there is too much stock. We see it in our own company, preforms and the raw material, there is too much stock and no pressure to buy,” a customer said.

At the same time, a spate of shutdowns are planned for October/November, one of which started a month ahead of schedule.

Company Location Capacity kt/year Month Remarks
JBF Geel 216 Aug/Sep Week ending 21 August to 10 September on one line (all according to plan)
Neo Group Klaipeda, Lithuania 160 15 Sep-beg Nov One line - five year maintenance. Shutdown originally planned to start in mid-Oct for six weeks
Indorama Ventures Rotterdam, Netherlands 426 Oct/Nov 29 days from mid-October
Indorama Ventures Wloclwek, Poland 230 Oct/Nov 29 days from mid-October
Novapet Barbastro, Spain 100 Oct/Nov 40-50 days from October

UPSTREAM MAYHEM CREATES EU EXPORTS
The relatively stable upstream paraxylene (PX) market has been straightforward in comparison with the chaos that ensues on monoethylene glycol (MEG).

The hurricane season resulted in a MEG curveball that sent PET sailing to the US from Europe, an importing region.

The devastation caused by the hurricanes also resulted in exports from Mexico and Brazil to the US, while freight rates from Asia proved unpalatable to buyers in Latin America.

The flow of PET basically changed, and sellers in Europe benefited from domestic excesses drying up due to export activity and turnaround schedules.

“The European producers are happy with what they have. They may have spot cargo but are not under pressure, so they give higher prices,” a trader said.

DEMAND/SUPPLY
Likewise, buyers may have sufficient stock if demand really is low, and are interested in hand-to-mouth purchases alongside contractual offtake. The temptation to commit to floating cargo dissipated in view of the renewed coronavirus-related restrictions and faltering downstream demand.

“I would expect that demand will remain weak for the remainder of the year. Originally I had thought there may be an uptick in demand in December around Christmas, but this seems unlikely with Europe coronavirus cases rising quickly again and many countries reintroducing stricter measures,” said Susan Mair, ICIS PET analyst.

Although the market has slowed, a plant tripping, for example, could still spell disaster for certain customers.

On that note, Alpek Polyester UK announced it would close the 150,000 tonne/year M5 PET resin line at its Wilton, UK site. It will continue to operate its newer 220,000 tonne/year melt-to-resin LC1 plant, also in Wilton.

PET imports into the UK have tended to be around 130,000 tonnes/year in the past few years, while exports totalled around 20-25%, according to ICIS estimates.

The EU would normally be an obvious choice for replacement product, but Brexit complicates matters.

In the event of a no deal Brexit, PET will initially be subject to a 6.5% tariff, which could fall to 6% once the UK government has assessed if the higher rate is needed to protect domestic manufacturers from unfair competition. The review is due to take place in 2024.

Historically low prices have already encouraged fixed price deals, some of which include deliveries into 2021, but the bulk of negotiations are only just getting under way.

Meanwhile, the quiet spot market may be a deceptive portrayal of reality as the industry madly paddles the uncertain waters below the surface.

The European Petrochemicals Association (EPCA) annual conference is the key networking event in the region’s petrochemicals industry, but the pandemic forced the virtual format.

EPCA’s CEO Caroline Ciuciu said to ICIS in July she was hopeful industry participants would actively participate in the virtual activities organised, and analysed what persisting social distancing measures could mean for the industry group’s main source of income.

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.

The EPCA virtual annual meeting runs from 5-7 October.

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ICIS is pleased to offer a complimentary seminar during EPCA week, covering the key developments, potential risks and opportunities in the global chemicals markets. Join our market experts on 9th October as they uncover the emerging trends in geopolitics, macroeconomics and global markets. Register for free here.

Focus article by Caroline Murray

Thumbnail picture source: Alec Jones/Bav Media/Shutterstock