PET tight in Europe but customer interest wanes

26 June 2014 17:44 Source:ICIS News

LONDON (ICIS)--A tight European polyethylene terephthalate (PET) market, coupled with rising production costs is creating a bullish price environment, but customers’ interest is not necessarily peaking, sources said on Thursday.

“All European suppliers are allocating volumes because they don’t have volumes…people don’t have big stocks. Suppliers are holding back offers because they… are worried because they…know their costs will go up, so they hold back offers for July,” a reseller said.

Shortness in upstream purified terephthalic acid (PTA) was also mentioned as a contributing factor to the current PET situation.

Industry sources had expected PET prices to fall in July, as duty-free imports are due in from South Korea and new capacities were supposed to be making an impact already in June.

“I am surprised it is still so short with material in Europe. Everyone was expecting new plants coming up in July and were talking about June even and for July there was supposed to be plenty of material and suddenly there is nothing. We thought too, there would be plenty of material in July and then it's delayed,” a buyer said.

The goal posts keep changing as the timing for new capacities to emerge is pushed back and now raw materials have shot up in dominant Asia. Any hope customers had of finding competitive domestic material in July has disappeared.

The need to buy though, is not huge at present, because of large customers already having committed to imports due into Europe around now and in July. Moreover, some pre-buying activity of European PET took place earlier in June for July delivery, as at a certain point in time, some producers doubted their run of improved margins could last much longer.

“Based on raw materials [producers] would have to increase more, but also at these levels nobody is buying because it's such a high price,” a second reseller said.

With upstream paraxylene (PX) racing up, anything from plus €70-100/tonne has already been mentioned as potential hikes on contracts from June to July.

The monthly monoethylene glycol (MEG) contract has only just been agreed for June, but its feedstock ethylene rose by €50/tonne today, from June to July, and this may influence sentiment on MEG, too. MEG also feeds into PET.

“If [PET producers increase by] €30-40-50/tonne plus [in July], then everyone will jump to imports… the good times are over. They will get into a squeeze again,” the second reseller added.

Prices are currently either side of €1,100/tonne FD (free delivered) Europe, and already there is a push for producers to concentrate on prices above this, abandoning any numbers below.

However, customers, particularly larger ones, are relaxed because they have covered product in.

“There is a reluctance of converters to buy resin at this time,” a supplier said, echoing comments made by other sources.

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By Caroline Murray