Latin American PET tight due to shortage of US feedstock

Author: Luly Stephens

2020/10/13

HOUSTON (ICIS)--Latin American polyethylene terephthalate (PET) markets are facing tight supply due to a shortage of monoethylene glycol (MEG) caused by production interruptions in the US as a result of the landfall of two hurricanes in Louisiana in a span of only six weeks.

The shortage of MEG supply for resin production has led to tight resin supply in countries that depend on feedstock imports for PET production such as Mexico.

But Mexico’s PET supply tightened not only because of reduced operating rates, but also because of increased PET export volumes to the US.

The tight supply situation supported a 4 cent/lb October price increase in Mexico. Demand levels remain strong mainly from the foods and drinks packaging segment.

PET prices also increased in other Latin American countries where there is local resin production because of feedstock MEG shortage, tight resin supply and rising freight costs.

Producers as well as buyers of PET appear to have low inventories.

Improving PET demand in South America, coupled with tight supply, translated into price increases in Brazil and Argentina, with prices gaining $15-30/tonne in October. Additionally, exports of PET from Brazil to the US have tightened the supply situation further.

Brazil’s demand is strong and appears to be gaining momentum.

Argentina saw improving demand, but the already stressed economy has worsened due to the long, strict quarantine in place since March. Restrictions are easing in the province of Buenos Aires while the number of infections is rising in other provinces.

Rising freight costs have affected resin prices in Mercosur because those values are part of the formulas used for prices.

Although demand is improving in South America, it is not as strong as expected in some countries due to the weakened economies and the ongoing fight against the spread of the pandemic.

Improving demand levels in several countries are attributed to government assistance programs. End-consumers' buying behaviour could change once programs are halted.

Higher freight costs for imported Asian resin are also influencing prices in non-producing countries along the Pacific Coast of South America. Although Asian PET prices have been stable to soft, there is very little product coming to Latin America because shipping costs have increased drastically.

Asian PET offers have been holding steady as sluggish demand resulted in slow business activity and fewer chances for any hike implementations so far in October.

Price discussions are ongoing for potential price increases of as much as $40/tonne for November.

Some Asian suppliers are said to be delivering less than 60% of projected volumes to Latin America. This situation is expected to extend through most of November, according to offshore suppliers.

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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 molding 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.

DAK Americas, Indorama, Nan Ya Plastics Corporation and Far Eastern New Century (FENC) are PET producers in the US.

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Focus story by Luly Stephens

Thumbnail image shows bottles made of PET. Source: Bernard Jaubert/imageBROKER/Shutterstock