OUTLOOK ‘14: Europe PET to stay long, but may retain its value

By Caroline Murray

LONDON (ICIS)–The polyethylene terephthalate (PET) market in Europe is long but the survival of existing plants will depend partly on competition and demand so PET could retain its value, according to industry sources.

“I don’t expect a big difference. I think the price will… be similar like the last year. There is no sense to produce below cost, so suppliers will reduce quantity and protect contracts,” a PET buyer said.

There is no relief from the changing landscape of the European PET market, as the reality of squeezed margins results in the closure of plants. Some of which may reopen under different ownership, as new ones emerge.

Notwithstanding additional capacity for PET and upstream paraxylene (PX), PET prices may not move a great deal, and may even increase, as European producers curtail output to restore balance to the market.

“Probably PET will theoretically be long but I wouldn’t sell now. I will wait. The chance is quite high that it won’t be long. It can happen as well that it can become tight,” a PET seller said.

The threat of imports, particularly from a duty-free South Korea, and the potential damage these could have on domestic producers, will dominate the PET market in 2014, particularly if the euro holds its strength against the US dollar, some said.

“There will be one point when there will be a clash of producers, too much product. But the main thing is imports. [South] Korea has a substantial advantage,” a reseller said.

Availability will exceed demand, at least on paper.

“Everyone is planning exports but they have no idea where to export because every region is an export region… Demand is much smaller than available capacity,” a converter said.

The market awaits the introduction of new PET plants in the UK, Belgium, Turkey and Egypt, that will total over 1m tonnes in nameplate capacity.

Meanwhile, existing PET plants are dealing with financial traumas that have led to insolvency procedures, idled capacity and more focus on speciality PET products.

So much of what happens will depend on the economy – this having played a crucial role in creating a battlefield among suppliers in 2013.

“The economy is still weak and I don’t think it will improve much. So when consumption is bad like it is now, I don’t think prices will go up much. Rather, the raw material [prices] will go down because of the lack of demand,” according to a third buyer.

Some players expect PET prices to remain stable on a low level, while others anticipate fluctuation based on erratic feedstock values.

“2014 will be long [as 2013] but I expect a margin recovery [back to average of first nine months 2013],” a PET producer said.

PX, the raw material for purified terephthalic acid (PTA), the primary feedstock for PET, is likely to be long in the dominant Asian market, potentially putting downward pressure on European prices in 2014.

Monoethylene glycol (MEG), PET’s secondary feedstock is expected to be balanced-to-tight in 2014.

“[MEG] Availability doesn’t change unless importers import more. This is not the case, because there will be shutdowns,” according to an MEG source.

There are glycol and upstream ethylene oxide (EO) shutdowns scheduled for the second, third and fourth quarter that will curtail availability in Europe.

However, fresh PET output pulling on MEG supplies will partly depend on whether existing or old capacities will reduce output or shut down as a consequence.

“To add new [PET] capacity doesn’t automatically lead to a higher consumption of MEG, if others have to reduce or shutdown utilisation,” a second MEG producer said.

There are so many unknown factors that many sources are struggling to provide forecasts for 2014. 

“There are still unknown factors… If you think of one thing you [come up with] a counterargument the same second. I don’t expect big movements,” a reseller of PET said.