Asia PTA seen firm on China plant turnarounds, stable demand

SINGAPORE (ICIS)–Asia’s purified terephthalic acid (PTA) market is expected to continue seeing stable margins in the second half of 2017 as downstream units in the polyester segments continue operating at high rates.

While demand is expected to taper off going into the third quarter as the peak demand season ends, no major let up in downstream consumption pattern is expected.

Buyers are expected to continue purchasing spot volumes on a need-to basis, especially for producers of polyester fibres and yarns, as well as bottle-grade chips.

“Downstream operating rates will likely remain high for the second half of 2017, as inventory levels are still considered low,” a major producer in east China said.

The bout of plant turnarounds in the second quarter of 2017, especially in the May and June period, is expected to reduce supply pressure going into the third quarter, as the market rebalances and producers build up inventory levels and reduce spot and contractual volumes.

However, more PTA start ups in the second half of 2017 are expected to add on to supply pressure, with Tongkun Petrochemical expected to start a 2.25m tonne/year PTA plant in the fourth quarter and India’s JBF Industries expected to start a 1.25m tonne/year PTA plant in New Mangalore in the same time period after some delays.

Idled Shaoxing Huabin is also expected to restart a 1.4m tonne/year PTA line within the second half of 2017.

Oriental Petrochemical Taiwan Co (OPTC) is also expected to start a 1.25m tonne/year PTA unit between fourth quarter of 2017 and the first quarter of 2018.

“With these capacities coming on stream, it is likely that more capacity adjustments and industry rationalisations are due to come,” an industry observer said.

The PTA market had previously seen firm spot demand in the latter part of first half of 2017, flipping a previously seen trend on its head.

The market initially saw thin spot liquidity immediately after the Lunar New Year holidays, as end-users continued to consume volumes left over from the first quarter.

Previous high consumption and operating rates in the downstream polyester industries saw end-users piling up PTA inventories in the first quarter, before gradually using the cargoes into the start of the second quarter.

However, this trend flipped going into May and June, when spot demand surged as key PTA producers in China lowered plant operating rates and held plant maintenances.

Spot demand was high, with both polyester and non-polyester producers in the spot market for both ex-CMP (China Main Port) and CFR (cost & freight) CMP cargoes, with multiple deals seen on a weekly basis.

As much as 13,500 tonnes of spot volumes were transacted in a single week. CFR CMP cargoes continued to fetch slight premiums over ex-CMP cargoes.

A major end-user in the downstream polyethylene terephthalate (PET) market has bought up about 10,000 tonnes of ex-CMP cargoes over a week, fulfilling re-export demand. Interest in imported CFR CMP volumes was also firm, with both polyester and non-polyester producers in the market sourcing for shipment cargoes.

There were a number of deals done for cargo sizes ranging from 500 tonnes to 1,500 tonnes.

Market sources said purchases were to cover shortages in contractual requirements from end-users due to plant turnarounds, as well as to cover short positions for the near-term in case of more confirmed plant turnarounds.

Some tight supply sentiment remains in the market due to the various planned and unscheduled turnarounds.

Key producers are only expected to resume higher production rates from July.

There remained a number of turnarounds, which have not been confirmed but are likely to take place, sources said.

Polyester end-users continued to run at high operating rates of above 80%, PTA producers said, indicating economical margins for these producers.

PTA producers are expected to continue running operational units at the same rates, with more units expected to recover from turnarounds in the near-term.

Warehouse receipts in the futures market were also trending lower in the second quarter, dipping to the 1.02m tonne level from the 1.6m tonne level seen previously.

Futures warehouse inventory levels are decreasing, based on positions held by key PTA producers including Yisheng Petrochemical, Hengli Petrochemical and Hanbang Petrochemical.

Top image: Photographer GERHARD BUMANN / Action Press/REX/Shutterstock

Focus article by Paul Lim