PET prices had shifted direction in Asia as they started to soften at the end of March and early April in line with declining feedstock costs. Softening in upstream markets has not stopped this week despite firm oil prices at the highest levels since the summer of 2008.
Despite the approaching high season for PET bottles, feedstock markets continued to soften. PX prices lost US$30/ton on FOB Korea basis while PTA fell by US$60/ton and MEG dropped US$10/ton on CFR China basis since the beginning of April. The decrease amounts are greater at US$55/ton for PX, US$120/ton for PTA and US$155/ton for MEG when compared to the beginning of March. Dips in upstream costs are mainly due to lackluster polyester demand from the textile sector in China that is loaded with high polyester inventories. Plus, talks of reintroducing electric rationing in China could lead to power cuts at some of these energy intensive textile factories and cause lower operating rates. However, it should be noted that despite the overall downward cost movements, PX prices recorded an increase of almost US$30/ton on April 21st vs April 20th, on reports from the US Energy Information Administration that US crude stocks fell 2.322 mln barrels week on week, against earlier forecasts of 1.6 mln barrels.
Considering these decreases in the upstream markets, Asian PET producers elected to lower their prices both in the local and export markets despite the fact that some domestic producers inside China commented that a number of large sized buyers have stepped back into the market this past week, kindling the overall buying interest. In China, local offer levels retreated by CNY100/ton (US$15/ton) at both ends of the overall local range on FD/ex-warehouse China basis. Meanwhile, within the range, domestic producers’ price cuts are between CNY100-200/ton (US$15-31/ton) and they are also willing to offer further discounts to their regular customers in return for firm bids. Producers generally feel pleased with the current demand as several large sized converters committed to large volume purchases ahead of the Labor Day holiday on May 1st. However, distributors mostly prefer to reduce their stocks as they are concerned about the cash flow problems on the converters’ side following the Chinese Central Bank's latest increase decision on reserve requirements for the fourth time this year. However, there are some plant shutdowns in the country this month which might prevent further dramatic cuts ahead of the high season. On April 18, Jiangsu Xinye shut its 100,000 tpa PET production line due to mechanical problems for 1 to 2 weeks. Meanwhile, Pan-Asia Polyester has begun their 3 week long maintenance shutdown at its 260,000 tpa plant on April 20. Looking at the export offers out of China, the overall offer range lost ground by US$50-55/ton on FOB Korea basis compared to the middle of April. According to the players in the country, most producers elected to lower prices on a daily basis dipping to a weekly decrease of US$55/ton. The main reason behind this noticeable drop is the lower feedstock costs although producers complain of failure to achieve better buying interest even after their price cuts. Meanwhile, buyers are mostly sidelined from the market as they expect to see further declines given the theoretical PET production costs based on current feedstock prices that are US$30-60/ton below the producers’ prevailing offers. On another note, South Korean PET producers’ export offers are US$30/ton lower on FOB Busan basis with respect to last week. “We had to lower our prices in order to generate better buying interest whilst upstream costs are declining,” they commented. Reportedly, South Korean producers also failed to conclude any major deals even after the decreases and therefore, they are open to negotiations for serious buy ideas. Now, PET producers are currently offering some discounts given their comfortable margins but these decreases are not likely to be in large amounts considering the signals of improving demand coupled with the approaching high season and firm oil prices, which are continuing to hover above the US$100/bbl threshold.