INSIGHT: Indorama exit from PET feedstock markets to spur China PTA exports

SINGAPORE (ICIS)–Demand for China’s purified terephthalic acid (PTA) will get a boost as Indorama Ventures Ltd (IVL), a global producer of downstream polyethylene terephthalate (PET), shifts away from expensive integrated operations.

• IVL plant closures likely to focus on PTA – sources
• Tariff barriers dampen growth prospects for China PTA, PET exports
• China pins hopes on Belt and Road Initiative for new markets

IVL cited overcapacity in China as one of the principal reasons for its new strategy – to procure cheaper feedstock from Asia, instead of running integrated facilities in the US.

“A large portion of the refineries in the West are aged and losing their competitiveness. These facilities are expected to gradually close in the future,” ICIS senior analyst Jimmy Zhang said.

The Thai company is the largest global PET resin producer with a 20% global market share and operates 147 production facilities in 35 countries, with its sales footprint covering over 100 countries in six regions – North America, Asia, Europe, the Middle East and Africa (EMEA), and South America.

IVL 2.0 CALLS FOR SHUTDOWN OF SOME PTA UNITS
Globally, IVL has a total production capacity of around 19m tonnes/year, the bulk of which or 67% are in combined PET business, which covers integrated PET, specialty chemicals and packaging, according to Thai investment research firm Innovest Securities.

Integrated olefins derivatives account for 21% of the total capacity, while fibres have a share of 12%, it added.

Market players said that in the US, IVL may prioritize shutting down PTA units over monoethylene glycol (MEG) units, whose production costs are still competitive compared with other global producers, thanks to their use of shale gas.

“Given the current economic and market conditions, it is a wise decision to sell the assets which could not make money to ‘save its life’,” a trader in Asia said.

In Asia, IVL currently operates three PTA assets – two in Thailand and one in Indonesia.

According to market sources, the company could potentially mothball one of its less cost-effective PTA units in Thailand due to old age and technical issuSes.

Its operations in Indonesia can better serve India, benefitting from competitive freight rates to IVL’s key market in Asia, they said.

For now, IVL’s PTA plants in Asia still hold a unique export advantage in the south Asian country, as they are certified by the Bureau of Indian Standards (BIS). This certification was mandated by India late last year.

Currently, no Chinese PTA producers have obtained BIS certification, reducing competition for IVL from Chinese imports.

Origin swaps for PTA have taken place, with lower priced China cargoes being exported into southeast Asia as well as their downstream PET asset in Egypt. This enables Indorama to push for more exports to India at a much better price netback.

This will unlikely change unless China PTA producers are able to obtain the BIS certification from India.

Under its new masterplan dubbed “IVL 2.0”, IVL said that it will be reviewing six operating assets in the ‘West’ for potential shutdown, as it seeks to boost competitiveness.

Including the Corpus Christi Polymers (CCP) joint venture project with Alpek and Far Eastern New Century (FENC) whose construction was halted, the number of projects under review total seven.

IVL chief Aloke Lohia said that feedstock prices in Western markets are expected to increase over time as peak oil demand draws closer and refineries shut down, while the reverse will occur in emerging Asian markets as capacity rises, driving feedstock costs lower.

The rise in refining capacity in China and India allows IVL to buy petrochemical feedstocks cheaper than they could produce them domestically,  Lohia had told ICIS.

CHINA CAN FILL IN IVL PTA NEEDS
China has the ability to export PTA at much lower cost amid a domestic oversupply, with the country’s annual production capacity now at more than 70m tonnes, only a small fraction of which – around 3m tonnes – are shipped abroad, according to the ICIS Supply & Demand Database.

Over the years, China has continually increased its capacity across the entire polyester chain, granting Chinese producers a significant advantage in integration and scale for paraxylene (PX), PTA and PET, Zhang said.

The country is now a major PTA exporter and has swung from being the world’s biggest net importer of polyester fibres and PET resins (bottle and film grade) to being the biggest net exporter, ICIS senior Asia consultant John Richardson said.

But trade barriers in several countries hamper imports from China, raising the likelihood of “more barter trading activities” in the future, Zhang said.

He is referring to a process in which Chinese cargoes will move to a duty-free country, which, in turn, will re-sell the volumes. With the change of origin, the cargoes can then be sold to markets with existing trade barriers to China duty free.

“For example, it is likely that China will export more PTA to South Korea, while South Korea will export more PTA to other countries who set trading barriers for China,” Zhang said.

CHINA CHANGES APPROACH TO TRADE
With anti-dumping investigations curtailing direct exports of PET to certain markets, China is moving away from western markets, shifting its focus on those covered by free-trade agreements within its Belt & Road Initiative (BRI).

The country’s PET export market has shrunk since mid-2023 after the EU started anti-dumping investigations, with provisional duties on Chinese material activated in November of the same year.

Anti-dumping investigations against Chinese PET, meanwhile, are ongoing in Mexico in North America and South Korea in Asia.

China is expanding free-trade agreements (FTAs) with Belt & Road Initiative (BRI) and non-BRI member countries to counter growing geopolitical differences with the west, potentially leading to a shift in trading patterns as Chinese apparel and non-apparel production moves offshore to these nations, ICIS’ Richardson said.

Overseas plants could be supplied by China-made polyester fibres, allowing the country to retain dominance in the global polyester value chain and offset rising labour costs, Richardson said.

“Offshoring to the developing world may also enable China to make up for any lost exports of finished polyester-products to the West due to increased trade tensions,” Richardson added.

China had signed 21 free trade agreements with 28 countries and regions as of August 2023, according to the Chinese state-owned Xinhua news agency.

More than 80 countries and international organizations had subscribed to the “initiative on promoting unimpeded trade cooperation along the Belt and Road”, which is part of the BRI, it said.

Source: Mercator Institute for China Studies (MERICS)

Insight article by Nurluqman Suratman

With contributions from Judith Wang and Samuel Wong

Thumbnail image: Canal Container Transport, Huai’an, China – 12 March 2024 (Costfoto/NurPhoto/Shutterstock)