Chemical Profile: Europe PTA

28 March 2014 09:45 Source:ICIS Chemical Business

Nearly all purified terephthalic acid (PTA) is consumed in polyester production, including polyester fibre and film, and polyethylene terephthalate (PET) resin.

Investment into PTA capacity both in terms of new start-ups as well as new ownership of existing plants clashed with the economic crisis. Excessive global supply, particularly in the dominant Asian market, and poor demand heralded the closure of Lotte Chemical UK’s PTA plant in Wilton and a difficult time for European producers in general, one that shows little sign of abating in 2014.

Terephthalic acid exports out of the EU to the rest of the world dropped from 726,816 tonnes during the whole of 2012, to 266,619 tonnes in 2013 – a decrease of 63%, according to data from European statistics agency Eurostat (which is subject to revision as more detailed information becomes available.)

In 2013, suppliers were affected by the financial traumas that hit the downstream PET market. These led to insolvency procedures, idled capacity and more focus on speciality PET, as the market awaited the introduction of new PET plants in the UK, Belgium, Turkey and Egypt, that will total over 1m tonnes in nameplate capacity.

Imports rose year on year over the whole of 2013 however, by 27%, totalling 157,157 tonnes compared with 123,590 tonnes imported in 2012.

PTA contract prices move in line with those for upstream paraxylene (PX). The change in PTA producer costs is approximately 2/3 of the change in PX costs and this is referred to as the PX pass-through. Producers try to increase their margin on top of this, while the buyers try to decrease it.

The gap between the conversion fee paid by smaller PTA customers and that paid by PET producers, who are the biggest buyers of PTA, is narrowing.

PX and therefore, PTA contract prices, peaked early on in 2012 and 2013 only to drop down to levels not seen since the summer of 2010.

The March PTA market remains bearish, pressured by the potential for another drop in PX. Demand for PET has not been performing well, with PET producers reducing output as a consequence.

However, forthcoming PTA shutdowns, and talk of reduced PTA output in Europe is proving positive in terms of sales for those producers that are running normally. The potential for a high PET bottling season would also be good for sales.

Fundamental changes in the Asian landscape, an uncertain macroeconomic outlook and bearish sentiment among derivative players are likely to keep sustained pressure on the European PX market and the monthly contract negotiation process in 2014.

Modern technologies produce PTA by the catalytic liquid-phase oxidation of PX in acetic acid , in the presence of air, using a manganese or cobalt acetate catalyst.

The reaction is exothermic, producing water, which is removed in a solvent recovery system. Acetic acid from this is returned to the reactor together with the oxidation catalyst.

The resulting PTA is purified in a crystallizer, where the unreacted xylene and water are flashed off. Some plants have been modified to also produce isophthalic acid by substituting metaxylene for PX.

Additional PET capacity coming up this year may help to absorb PTA molecules, should PET plants function on time and at healthy rates.

A free trade agreement with South Korea and the threat of cheap PET and PTA imports will do little to placate concerns regarding excess PTA availability, however.

Whereas the main output of PTA in Europe goes into the PET bottle industry, overall the dominant market is Asia, so much of what happens in Europe depends on developments in Asia where polyester is the main application.

Polyester capacity demand tends to track the GDP rate in the key China markets.

Capacity growth in Asia is forecasted at around 11% annually, exceeding the 6-7% growth expected in demand in 2014.

Around 11.75m tonnes/year of new PTA capacities are expected to be added in Asia this year, but weak market conditions have led to some delays, according to sources.

PTA suppliers in Asia have been facing squeezed margins since the second half of 2013, with the spread between feedstock PX and PTA kept at $35-80/tonne, and a typical break-even spread of $100-120/tonne.

As a result, several PTA producers face financial problems, especially due to the credit crunch in China.

This phenomenon will most likely drag on for the rest of the year on an oversupplied market as downstream markets continue to face challenges in growth, according to industry sources.

By Caroline Murray Samuel Wong