OUTLOOK '18: A significant restart to play on Europe PET conditions

08 January 2018 11:00 Source:ICIS News

LONDON (ICIS)--The restart of India-based polyethylene terephthalate (PET) producer JBF Industries’ Belgian plant poses as the greatest factor for European market participants to consider in 2018.

The commencement of full production at the site in December came after financial issues were revealed at UAE supplier JBF RAK in August, causing shockwaves in the European PET market.

Sources in Europe were concerned as the seller is a subsidiary of JBF Industries, which owns a 432,000 tonne/year plant in Geel, Belgium.

This Belgian facility was taken offline in August, with producer Lotte Chemical UK (LCUK) declaring a force majeure at its 165,000 tonne/year Wilton plant in the same month.

Consequently, the PET price midpoint was pushed to €1,115/tonne FD (free delivered) Europe at the end of August which was then surpassed in September, for similar reasons, to reach €1,130/tonne FD Europe.

This September peak was the highest price midpoint level assessed in the European PET market since 2015.

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Although one line was then restarted at the Geel site in October there was uncertainty among participants regarding what the future output at the plant would be.

As a result, even though buyers said that they were covered in terms of material mostly due to imports, in the months between August and December sellers were said to be selling out.

Imports did contribute to the calming of European market conditions following production issues in August and were expected to continue doing so in the absence of two operational Geel lines.

In October, for instance, competitive Chinese material arriving to European shores resulted in domestic price drops.

The arrival of these imports was partially the consequence of a preliminary antidumping duty being placed by the Japanese government on Chinese PET in September, which forced global trade flow changes.

The financial difficulties being experienced at Italian producer Mossi & Ghisolfi (M&G), that led to the shutdowns of its plants in Altamira, Mexico and in Apple Grove, West Virginia in September and October respectively, however, similarly redirected Asian material to the Americas

“In the end, when you have availability it trickles down from one place to another. From one country to another...so everything...  has an effect in the long run,” said a buyer in mid-November.

For this reason, a few market participants said that Asian imports stopped being as competitive in Europe in November partially as they were sent to the US instead.

“I am in contact with a supplier in Asia which told me that they are completely sold out as well as for European business, but I know that they are exporting a lot to the US,” said a buyer in early December.

This sudden change in pricing for imports shows the potential future difficulties in relying on product from outside of the domestic market.

The scheduled expiry of EU anti-subsidy measures on Indian PET in May 2018, nonetheless, could help widen the net from for European consumers to procure foreign-sourced volumes.

“There is always a warning, if the flows of imports start to reduce and JBF [Industries' Geel plant] is out totally then again prices will move up,” said a buyer.

Otherwise, European producers often pointed to financial difficulties at M&G and JBF RAK in 2017 as proof that margins need to widen for sellers.

Consequently upwards pressure was placed on annual contracts negotiations for 2018 with feedback from these talks indicating that sellers originally expected the lack of an operational second line at JBF Industries’ Geel plant and the unreliability of imports to cause difficulties for buyers.

“The market will be very tight next year. Because we have finalised all negotiations and our customers will not get all the volumes,” said a seller.

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There was certainly anticipation from the sell side that this will be the case for the first quarter of 2018, with many expecting upwards pressure due to the absence of imports, domestic tightness and the beginning of preparations for the peak season.

To add to this, a force majeure declared by upstream Polish purified terephthalic acid (PTA) supplier PKN Orlen at its 600,000 tonne/year Wloclawek plant at the end of November, which was lifted in mid-December, reduced the stock at some PET plants heading into 2018.

The restart of the second line at the Geel facility in mid-December, however, could push against these expectations and factors as it would, inevitably, eventually lengthen the PET market.

Sellers initially remained calm in response to news that both Geel lines had become operational arguing that prices did not immediately drop after the first line came online in October.

Additionally, even with a fully operational Geel facility, prices increased in Europe in the first quarter of 2017 while sellers said that they already allocated the majority of their volumes in 2018 to contracts.

“We need... the two lines running... I think it is good because again we cannot serve the whole market [without those lines],” said a seller.

The restart was previously seen by consumers as a development that would lengthen supply and drive PET pricing.

The question since has become when will it have such an influence with early feedback agreeing that any effect from the facility will not be felt in January, but perhaps could affect the market in February and March.

“[It] will have probably an impact on the supply. Not in January, it might have later, because I guess they don't have any stock, they just have to build their stock first,” said a buyer.

While, later in the year, there would be even ampler availability after the start-up of Lithuanian producer Neo Group’s third 160,000 tonne/year line at Klaipeda in quarter three of 2018.

 “Well I think January itself... the market should be a little bit tight, honestly, on the import side. On the European side it depends on JBF [Industries' Geel plant],” said a trader in early December.

By Pavle Popovic