Looking at the North American market dynamics, converters are holding their purchases. This may be due to either a sluggish demand finally setting in as the low season is well underway; secondly there is an apprehension among buyers on how the market may hold up in the coming future in terms of pricing. With the demand for antifreeze high, a tight supply position is helping the MEG prices; however, as explained earlier, there is an inherent weakness in the PX side of the supply chain, as there is an arbitrage for mixed xylenes to Europe. So the downstream demand dynamics are topsy-turvy and may put to a halt this grinding cost pressure. The next couple of weeks will define the impact of demand. Light-weighting continues to depress demand of PET, and the demand for food containers is a high growth sector. But even this sector uses wide spec material which has a lower price than prime grade. So the cost fundamentals may be weakened as the demand function is set to lose it robustness. Price is the west European sector is stable, with producers looking for a Euro 70/ton increase. However, amidst this increase in raw material costs, PET producers seem resolute to incorporate the cost impact of raws into their pricing, and with Asian import at par with European producers or higher, there is a very good chance that prices would increase to Euro 1300 + levels. However, looking ahead in the near future, many speculate that spot pricing would reduce as an aftermath to the Chinese lunar year, which would induce a downward cost pressure on PET. This reduction should be momentary at the most, as Chinese market reverts to normality after this break which does stretch quite long. Even the far eastern bottling sector is seasonally sluggish. Plant operating rates are in the vicinity of 60-70%, and converters are of the view that prices would fall in the coming days, so they are not building stock. Most far eastern economies have reduced competitiveness for bottle grade polyester resin exports, and in contrast to EU and Russia, the demand from South America is picking up as that region enters a peak season.
Conclusion: The downstream demand dynamics are topsy-turvy and may put to a halt this grinding cost pressure. The next couple of weeks will define the impact of demand.
