OUTLOOK ’18: Asia PTA seen robust on downstream demand, margins key

SINGAPORE (ICIS)–Healthy downstream polyester demand is expected to give some support to Asia’s purified terephthalic acid (PTA) market this year but a key point for the producers would be balancing the run rates against PTA margins.

Market players are generally cautiously bullish for downstream polyester market demand to be relatively good, though perhaps not as good as it was in 2017.

The polyester industry performed unexpectedly and exceptionally well in 2017, and saw double digit growth rates.

Moving into 2018, possibly lower but still healthy growth is expected of the polyester industry that will help to support the demand for raw material up the supply chain for PTA and further upstream paraxylene (PX).

There was some slowdown in the downstream polyester sector in the fourth quarter (Q4) of 2017, and it is likely to extend into the first quarter (Q1) of 2018 amid the Lunar New Year holiday in February.

Many downstream polyester manufacturers will be shutting or reducing their operating rates near the Lunar New Year holiday, hence a reduction in PTA demand can be expected.

Demand will, hopefully, pick up from where it left off in the end of 2017 after the holiday.

The good performance in the downstream polyester industry in 2017 contributed to making the PTA supply tight.

With supporting downstream market situation, several idled PTA plants restarted in Q4 2017.

Some restarted later than expected, hence PTA supply tightness continued on even when there was a slight slowdown in the polyester sector.

Amid the tight supply situation, the PX-PTA spread was improved in Q4 2017 as compared to most of the rest of 2017.

PX-PTA spread improved from below the $90/tonne mark at the start of Q4 2017, to over $110/tonne at the end of the quarter.

Both the tight supply situation and improved PX-PTA spread were favourable conditions for PTA producers to run their PTA plants at high rates.

This encouraged the idled PTA capacities in China to restart.

Idled PTA capacities of 3m tonnes/year and 600,000 tonnes/year, under Xianglu Petrochemical and Hanbang Petrochemical were restarted in November and December respectively and have ramped up to full operating rates.

It remains to be seen if Huabin will be restarting its idled 1.4m tonne/year capacity.

The idled line had restarted in end-October but had to shutdown after a brief operating period, and no new restart date had been proposed.

While the PTA supply situation remained tight at the end of 2017, the tightness is expected to come to a more balanced state in Q1 2018 when the impact of the additional PTA volumes from the idled plants and recently started new plants comes into the market.

Oriental Petrochemical Taiwan Co (OPTC) started up its 1.5m tonne/year Line 3 in Kuanyin, Taiwan in November and Jiaxing Petrochemical started up its 2.2m tonne/year No 2 line in Jiaxing, Zhejiang, China in December.

The balancing of run rates against margins will then likely become a key point for Asia PTA producers.

With a wide PX-PTA spread, PTA producers will target high operating rates. However, operating rates need to be controlled to meet demand to avoid a supply overhang in the market, that may then put downward pressure on prices and jeopardise margins.

Outlook article by Hazel Goh