Europe March PET production costs lower, yet prices rise

LONDON (ICIS)–The cost of producing polyethylene terephthalate (PET) in Europe in March is less than it was in February, yet prices have risen.

“The market has changed to an extent that the supply and demand is again a topic. We were always following the raw material cost, there was no dynamic within the PET chain,” a reseller said.

The decoupling of PET prices versus raw material costs has been trending since the summer of 2017. A combination of surprise plant closures and diversion of trade flows in 2017 resulted in supply constraints in Europe.

March is no different. Import is scarce and there have been plant outages spanning Europe, so it is the supply/demand dynamic that is drawing up PET prices, while the values of feedstocks stabilise and decrease.

Upstream, March paraxylene (PX) rolled over from February,  while the March monoethylene glycol (MEG)  contract price decreased.

From the graph below one can see how in April 2017 production costs were similar to today’s levels, yet PET was nearly €100/tonne lower than it is at the moment.

The question now is whether PET customers have been pushed into a corner and bought up what domestic and import material they could in recent weeks, thereby allowing for more balanced conditions in the upcoming peak season.

“I would say in the short term the worst might be over. We are scratching our heads to see whether the stocks we have are enough to cover the season. We want to avoid going to market at a time when everyone goes into the market to cover for the season,” a second buyer said.

Brandowners and converters are rather well covered, particularly as many got their fingers burnt in 2017. But other customers will no doubt be seeking to increase their stocks in the second quarter, sources said.

“Demand is lower already in March, and April is even lower, because our customers were making a lot of stock when they realised prices are not going higher anymore…they immediately stopped buying and started using whatever they have on stock,” according to an industry participant.

Fresh imports in March were uncompetitive until a drop in Asian prices created a window for spot purchases. Shipping channels are full now until the end of April/beginning of May, and this may partly be because material is on the water to Europe, according to sources.

European accounts are heavily contracted this year, precisely because of the scare that customers got in 2017 when material was suddenly difficult to source. Spot product is therefore, priced at a premium.

“It is really difficult to get spot loads on the market and everyone is focussed on contracts…It is a strange situation and I think it won’t change. We have a lot of customers who are extremely scared these days,” a third buyer said.

The weather influences developments as PET bottle consumption rises in the warmer weather. Europe has been particularly cold this winter for longer than normal in some areas, so a hike in PET demand could come about as soon as it warms up. This could again lead to a potentially bullish or at least firm market, notwithstanding the feedstock movements.

That said, the traditional “peak season” has been losing ground, as customers prebuy where they can to avoid buying PET at the same time as everyone else.

“In the last five years, with the exception of 2017, prices have been going down in the season. Last year they increased rapidly but not due to the season, due to other reasons,” the second buyer said.

Decades of duties and subsidies imposed on other countries’ PET into Europe are coming to an end in May, with the disbandment of antisubsidies on Indian material. Nevertheless, the market remains tight and is driven by this factor more than the raw material dynamic.

PET is used in fibres for clothing, containers and bottles for liquids and foods, thermoforming for manufacturing, and in combination with glass fibre for engineering resins.

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