CONCLUSION: SHORT, MEDIUM & LONG TERM POLYESTER PRICING FORECAST

Basic understandings of the international economic fundamentals show a certain trend that would impact the polyester sector globally.  In stark comparison to East Asia, for Western economies, particularly United States, economic fundamentals are not robust.  The joblessness rate in the US has again gone up to 10%, which shows huge challenges yet to be overcome.  On the other side, eastern markets are tightening monetary policy, not to let these economies overheat.  India, South Korea, Thailand have notched up interest rates, and the Chinese government increased the reserve ratio requirements, thus tightening flow of money in the market.  This has a direct bearing on business output and consumption.  The major buyers of crude oil are the emerging markets of the East.  So with curbs on buying, with restrictive policies in place and amidst a wavering US$, in the short run there would be a capping affect on crude oil prices.  Further with OPECS willingness to curtail oil in the region of $75-85, there is a favorable chance that oil may not even reach the psychological level of $100/barel.  In fact a reversal in the oil rates going forward is also a possibility.  What does this mean for the polyester sector?  With the downstream demand not robust in the western economies, the juggernaut on paraxylene may loosen.  Factors attributable to this are simple, the inherent structural weakness in the demand cycle of paraxylene, with an arbitrage window for mixed xylenes, and the slow down of the eastern economies, brought through governmental intervention.  On the monoethylene glycol side of the sector, the downstream demand is strong, and prices are expected to stay strong.  Again the reasons delineating this are high demand of anti-freeze during the winters, and a shortage of Ethylene Glycol (EO) in the market, making the supply of MEG tight. 

So in the short term PTA looking strong based on a formula PX, and MEG supply tight, what holds for the PET sector in the immediate future and the near future?

This blog does not profess its predictions to be as insightful as those of nostradamus, but we are going be bold.  Downstream users have already set the pace of short term demand, by pre-buying, with limited success in transferring these prices further downstream.  But what is the outlook for the medium term; the fallout of 2011 Q1?  Amongst the above variables already discussed another variable to contend with would be the Chinese lunar year, commencing on February 3^rd; so pre-buying will give the PET producers enough room to price high, as the stocking up continues as this event nears.  This would mean that downstream demand will remain robust in the short term.  But, upon completion of this event, and with the Chinese market emerging from its slumber, there would be a momentary slow down, and there would be a time lag before market reverts to normality.  Prices should drop, and European converters would be quick to follow suit.  So February could be slow for Eastern as well as parts of Western polyester sector.  The North American market would be affected later, during March, as raw material settlements for Asia are finalized, while they would try to maintain the windfall opportunity through better crude prices, tight MEG and lower threat of arbitrage, as the Far Eastern market recovers from the holidays. 

In the long run, the contractionary , macroeconomic variables, set by the Eastern economies will dent the chances of price bubbles that we are experiencing right now, where as the expansionary macroeonomic set by the Obama administration are yet to yield the required results of renewed demand in the North American economy.  Europe also remains lackluster.