Firmer MEG costs revive PET market in Asia

06-Jun-11
In Asia, the PET market that has been on a downward trend for almost two months, has changed course over the past week due to the firmer MEG costs in the spot market as per ChemOrbis. Now, spot MEG prices indicate increases of US$60/ton on CFR China basis vs beginning of May, and US$65/ton higher on week over week basis. These increases resulted from shutdown of Taiwan’s Nan Ya Plastics’ 360,000 tpa and 700,000 tpa MEG units in Mailiao. These units were ordered to be shut as a safety measure by the authorities as of June 1, 2011. These plant shutdowns follow the shutdowns at two other plants of Nan Ya with capacities of 360,000 tpa each. These plants were shut May 12 after a fire at their feedstock supplier- Formosa Petrochemical. With all of the company’s MEG plants ordered to be shut as of June 1, the company declared force majeure on MEG exports and spot prices shot higher. The two units at Mailiao reportedly shut and started up immediately on June 1 and Nan Ya was reported to have allocated some cargoes to its customers. However, authorities still require that the two plants be shut completely within a two month period, according to The China Post. Meanwhile, in the contract market, June MEG contracts settled with rollovers to decreases of US$30-50/ton in Asia although the contract prices are still US$55/ton above the current spot market offers. Looking at other upstream costs for PET, spot PTA prices indicate US$115/ton decreases on CFR China basis with respect to the beginning of May while spot PX prices represent US$130/ton decreases over the same period on FOB Korea basis. However, during this past week, spot PTA costs also firmed up, albeit slightly, by ten dollars/ton. These developments took their toll in the Asian PET market and the prevailing downward trend changed direction last week with slight gains seen in prices. In China’s export market the overall offer range for PET indicates US$10/ton increases at both ends of the range with respect to the previous week while producers issued US$10-20/ton increases within the range, gaining support from the firmer spot MEG prices, in order to be able to maintain their margins. “We are not willing to concede to decreases given the fact that we feel free from stock pressure. Plus, we managed to conclude some deals with our regular customers at levels close to our initial offer levels, albeit in small tonnages,” some sellers underlined. On the other hand, buyers pronounce that they are not in a rush to make fresh purchases and they prefer to be sidelined from the market until the offer levels stabilize. Inside China, the overall local PET range is CNY100/ton (US$15/ton) higher at the low end while it is stable at the high end. Within the range, producers issued CNY200-300/ton (US$31-46/ton) increases pointing to the firmer MEG costs. PET producers now run their plants at an average of 86% capacity while distributors are hesitant to build up stocks due to the volatile MEG prices. Meanwhile, converters were reported to run plants at close to full capacity due to the high season although they still avoid making purchases exceeding urgent needs. Buyers expect to have a clearer view regarding the market direction following the Dragon Boat Festival in China that will take place on June 6th. In the export market, South Korean producers’ offer levels did not change on week over week basis as they wanted to ensure their sales. However, in plant news, South Korean KP Chemical is reported to shut down their 120,000 tpa No. 2 PET line for three weeks maintenance on June 2nd. Looking ahead, PET players in Asia mostly want to observe the developments in the upstream markets in order to have a clearer view of the market trend while producers are aiming to follow a stable pricing policy, highlighting their comfortable stock levels.
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