Disconnect with feedstock allows European PET to be sold forward

14 June 2018 12:57 Source:ICIS News

LONDON (ICIS)--The disconnect between raw material and current, high polyethylene terephthalate (PET) spot prices is so big in Europe that domestic producers are prepared to sell forward without knowing production costs, a reseller said on Thursday.

“Just because of the situation we have, it puts European producers in such a comfortable position that they sell for July delivery and already know they will make a margin because [the PET spot price] is so disconnected from raw materials, so it changes the market completely,” he said.

Producers tend to prefer current month sales, but at the moment, those with availability have good order books for July and may even start to sell August, the reseller added.

Material has been worryingly short in Europe, and is tight globally. Imports have been scarce, are priced similar to local material and do not seem to be having much of an impact.

A shift in exchange rates that favour euro-based buyers, or a push by Asian exporters would normally prompt customers in Europe to wait for imports. This competitive edge often results in domestic PET losing value.

While this is something that could happen at any moment, it is not a scenario that is relevant for today. Also, freight rates from China to Europe have recently increased.

In this environment of short supply, domestic producers have the upper hand to the extent that notwithstanding developments in Asia or upstream, they can continue to ask over €200/tonne higher than they did in May, for deliveries in June and July.

There are contracts based on raw materials that are currently between €200-300/tonne cheaper than spot, so producers' risk in selling spot is minimal.

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.

Picture source: Ulrich Niehoff/imageBROKER/REX/Shutterstock

By Caroline Murray