Some Chinese producers send their locally produced PTA cargoes to bonded warehouses at China’s main ports and declare them at the port customs as ‘one-day trip’ cargoes. The phrase, one-day trip cargo, has been coined by local market players because the cargoes are sold back into China as ‘imports’ from the bonded warehouses on the same day.
The one-day trip PTA cargoes are not subject to value added tax (VAT) at the point of production because they are made from imported paraxylene (PX) feedstock and are solely for export. The availability of one-day trip PTA cargoes hinges on how much imported paraxylene is in the market.
Chinese polyester manufacturers who buy the one-day trip PTA cargoes are not required to pay 17% VAT or 6.5% import duty on those cargoes, because the polyesters produced from them are for export. The one-day trip cargoes sold in US dollars are popular with Chinese buyers also because of their short delivery time and administrative and logistics convenience.
The key suppliers of one-day trip cargoes are of the opinion that these cargoes are technically imports and hence should be reflected in the ICIS CFR China benchmark price assessments. In other words, they are of the opinion that the bids, offers and transaction prices of the one-day trip cargoes should be considered in the CFR China price assessment process.
But there are detractors who hold the view that the one-day-trip cargoes should not be reflected in the ICIS PTA CFR China price assessments because, even though technically they are sold to China, the cargoes are not imports for all intent and purposes.
Amid the ongoing debate on what qualifies a cargo as an import, there is increasing acceptance among Chinese buyers and sellers that the bids, offers and deal prices of the one-day trip cargoes, quoted on an ex-CMP basis, provide a valid basis for assessing the CFR China prices of PTA, primarily because supplies from the traditional PTA exporting countries, such as South Korea, have shrunk considerably.
China imported 1.16m tonnes of PTA in 2014, a massive fall from the 5.37m tonnes imported in 2012. Imports have fallen further this year to 516,000 tonnes as of end October, and are expected to fall further in 2016.
Trades of the one-day trip cargoes increased significantly in November and December because one local producer had reduced its price offers significantly to entice buying interest.
Despite the dwindling imports of PTA produced outside of China and priced on a CFR China basis, and the increasing presence of locally produced PTA sold on an ex-CMP basis, these two types of trades are expected to co-exist in China, and hence continue to have impact on the ICIS PTA CFR CMP benchmark price assessment.
In response to the new trading practices in China, ICIS is looking at including the ex-CMP deals, bids and offers in its PTA CFR CMP daily and weekly benchmark price assessments, with effect from 4 January 2016. Discussions with the market are ongoing. Watch this space!
Purified terephthalic acid (PTA) is typically used in the production of polyester end-products such as polyethylene terephthalate bottles and films, and different grades of fibres such as filament yarns and staple fibres. The yarns are used to produce textiles which can be woven into fabrics or used as stuffing for toys, or wadding for bedding and furniture.
Notes: (1) PTA CFR China prices fell sharply in tandem with the fall in Brent crude futures. (2) PTA prices in the China domestic market and paraxylene prices are key drivers of the PTA CFR China price.
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