PTA (UPSTREAM)

Due to the structural weakness in the North American (NA) Paraxylene (PX) market, some NA producers are hoping for a settlement higher than 2.5 cents of Asia, but this may be overly optimistic.  Factors of reduced import, which is translating into higher domestic operations rate, and the Christmas holiday period are keeping the prices up, even though the year end reduction in demand is beginning to show.  Another factor to be kept in mind during January is how prices behave as the Chinese Lunar year, at the beginning of February, starts nearing.  So while the slackness in local demand may start weighing heavily during January, an interest in setting notional prices with East Asia/Far East would remain, which again could artificially keep up the prices up not only in the US but also Europe.  The reasons favoring high PTA prices in Europe are a strong pricing of polyester intermediates, high PTA demand from Russia and a good downstream demand.  And with low inventories of polyester, PET, as Q1 approaches, demand of PTA and PET is expected to remain healthy in the near futures.  Keeping the above factors in mind the cost push down the supply chain has not been typically hard.

The western pricing dynamics are largely influenced by what is happening in the East Asian and typically the Far Eastern market.  This applies to the complete value chain.  In the South Korean market not only there is a strong demand for polyester staple fiber, PSF, but also the demand for polyester filament is very strong, with operating rates of 80-85% being achieved.  PSF operating rates are higher at 95%.  This has translated into overall extremely high operating rates of 95-100% for PTA.  Further many new capacities in the Chinese market are expected to come online during the middle of 2011.  2000kpta Zhejiang Yisheng in Nigbo is expected to start during July 2011.  Another 600 ktpa plant of Sanfangxiang Group is planned to come on-stream by the middle of 2011.  So the demand pull on PTA is expected to remain well into 2011. 

Some economic factors to be reviewed that could act as a detriment to the feedstock profit margins & pricing could be the value of crude oil exceeding $100/bbl which would make a pass through the chain very tedious,  or what would be the Chinese governments midterm monitory policy and how could the industrial activity be affected by high interest rates.  Could we see a devaluation of cotton, thus lowering the price of PSF, and thus depressing the value chain prices?  These factors are some to be followed as we head into 2011. 

CONCLUSION: While the slackness in local demand may start weighing heavily during January, an interest in setting notional prices with East Asia/Far East would remain, which again could artificially keep up the prices up not only in the US but also Europe.