OUTLOOK ’14: Global PET overcapacity signals tough year In Asia

31 December 2013 02:20 Source:ICIS News

By Xia Xue

SINGAPORE (ICIS)--Asian polyethylene terephthalate (PET) producers are bracing themselves for another tough year ahead as PET global overcapacity set trails of challenges in the new year, several Asian PET producers said.

General market sentiment into 2014 remains bearish and many PET producers claim that 2014 will be an equally difficult year as 2013 with capacity growth rate of PET bottle-grade chips more than thrice the growth rate in demand.

The demand growth rate is less than 5% whereas the capacity growth rate of global PET bottle-grade chips is heard to be more than 15% in 2014.

In 2014, market participants said the world capacity for PET bottle chip will be at around 29m tonnes whereas world demand is speculated at only 20m tonnes.

According to ICIS data, Turkey’s Koksan started up the first of its two 216,000 tonne/year PET lines at the beginning of November this year and is scheduled to run at a minimum of 90% capacity in 2014.

Egypt-based EIPET will start up one 225,000 tonne/year PET line in late December 2013 and India’s Polyplex also plans to start up its 210,000 tonne/year PET line in Corlu, Turkey, around the same period.

In addition, Saudi Arabia’s SABIC plans to start up its 420,000 tonne/year PET plant in Yanbu in January next year.

As South Korea has been the largest PET exporter to Europe, the new PET resin capacities in Europe and Middle East will pose threats to South Korean producers, said a South Korean producer.

Furthermore, some South Korean producers also expressed their concerns on the removal of import duties from January 2014 on India-origin cargoes to Europe, which will directly compete with South Korea-origin cargoes.

A South Korean producer said that based on the unstable demand and supply situation, global operating rate should be kept at 60-70% in 2014 to control the severity of overcapacity.

The largest production of PET bottle-grade chips in the world comes from the Chinese producers, with a capacity of almost 9m tonnes in 2014, about 30% of the world’s production.

The oversupply situation in China experienced in the fourth quarter of 2013 is likely to spill over into 2014, which is unfavourable to the PET prices.

China’s Yisheng Hainan Petrochemical started up one 500,000 tonne/year PET line in September 2013 and is planning to start up another 500,000 tonne/year PET line after the Lunar New Year holiday in early February 2014.

Some market players, however, remained sceptical on the feasibility of starting up the 1m tonne/year plant amid weak business conditions.

Meanwhile, the start-up of the Yisheng Hainan’s PET line had caused margins to be tighter than before as more competitive prices were offered in the market.

Producers in the same region such as Shengzhiye Hi-Tech were heard to be pressured to shut its PET lines, with no specified restart date, in the third quarter of 2013 because of high production cost in an unprofitable environment.

A Chinese producer said that after aggressive cuts in operating rates and shutting of PET lines for maintenance, the average operating capacity in China remained at 55% in November and December 2013, which will be in favour for the PET market in the first quarter of 2014 if the operating capacity were to remain at this level as demand is expected to pick up.

Demand will traditionally start to pick up in the first quarter ahead of the summer season as the consumption in the downstream beverages sector increase.

The market is “not optimistic” but also “not pessimistic” in 2014, said another Chinese producer.

Macroeconomic situation will also play a large role in end-user’s consumptions and confidence, said a Chinese producer. He said that the economy in US and Japan were forecast to improve in 2014, which in turn will help to boost buying interest from the downstream sector.

In the upstream market, feedstock purified terephthalic acid (PTA) will similarly be in overcapacity in Asia with an estimated capacity growth of 20%, against demand growth rate estimated at 6%.

Likewise, operating rate of PTA units are expected to around 66% in 2014.

“The margin in 2014 will be the same level as this year,” said a northeast Asian PET producer, adding that the margins remained squeezed and unfavourable in the fourth quarter of 2013, which had resulted in producers suffering from losses throughout the end of 2013.

By Xia Xue