The supply chain in North America is not overly tight, but with PTA force majeures of Lotte in Europe and BP recovering to normalcy after prolonged outage, pressure would be released with limited outflow of PTA from the North American market. Currently their downstream demand remains reasonably strong, as trade with Mexico has picked up. In Europe a barrage of outages brought about due to technical reasons has severely limited PTA and thus the availability of PET in Europe. BP has recovered but Lotte and PKN Orlen are down. Further buyers of PTA found little relief from Asia, as there has been a strong demand for Korean PTA from India as well. Another problem under focus remains at BP’s Hull Acetic Acid facility, which is very important for the supply of PTA. If the Acetic Acid problem persists then there is a chance that it would impact availability in Q2 as well. So, for realistic reasons, there should be a price hike possibility in Europe although the North American is less tight as being it may appear.
Two factors are contributing to a tight PTA scenario. The downstream demand has not really picked up after the Chinese lunar year holidays. Sales to output ratio’s still remain low for PET. However, due to some output issues at Mistsubishi’s plant at Haldia, and three expected shutdowns in china (Xianglu Petrochemicals, FCFC Ningbo, Zhejiang Yandong) the future outlook indicates to a tight PTA situation. Two macro factors also point to rising demand, which are continued GDP growth of China, that will fuel local consumption and cotton shortage which would increase the reliance on polyester and thus impact positively its demand. The challenge to be faced is that these price increases are not being passed very well downstream. In fact many PET producers have started resisting such increases and some have even scheduled shutdowns under these circumstances. It is felt that a price correction is expected in the value chain, as it is overestimated and investors try to cover impact of inflation. In the short term, there could be a capping impact on PTA prices, but as soon as textile demand returns, the prices would start going up. Governmental intervention may be in the offing.
