PET SECTOR
In the NA region demand has gradually improved from the last
couple of months, but seasonal purchase pickup is still in the absent. There should be a surge in demand as Easter
holidays approach at the end of March and this momentum should be maintained
given by that time seasonal demand would have also picked up. So with current raw materials being flat and
PET producers wanting to increase price, many buyers are holding off purchases
but some going ahead with purchases. The
nominated increase of 4 – 5 cents will probably translate into an increase of
2-3 cents for February and then March should remain flat before it starts
trending up as April commences. Demand
in Brazil and Argentina remains very good with M&G 550 ktpa Brazilian plant
and Argentinean DAK America’s 150 ktpa running at 100% utilization rate.
A pessimistic atmosphere prevails in Eurozone. Strengthening of Euro has prompted purchase
from off shore manufacturers. Inventory
buildup is continuing at a slow but steady pace and an inching up of price to
Euro 1320 DDP was being sought. This
seems unlikely as the raw materials have softened after the Chinese New Year
break. With many global expansions coming
up, it is expected that regional reorganization of the PET industry may come
about. Demand in Russia, CIS and Ukraine
is strong and big purchases have occurred in preparation of the new
season. Buyers see that an increase in
price in the coming months is almost certain.
Offers have ranged of $1600 LC 90 day mark.
PET resin market in Asia Pacific region has remained lively
and a sense of anticipation has been felt for the direction of market
movement. Beverage production in China
has increased @ a rate of 11% over 2011, which signals strong growth and export
increased by 31% over 2011, targeted to the growing markets of South America,
Middle East, Africa and surprisingly West Europe as well. Production rationalization has allowed
operating rates to improve to 63% with 10-15 days of inventory. Exports to Japan increased by 7.4%. Korean producers are looking towards China to
understand what probable direction pricing will take as early spring is
expected. Thailand is emerging from its
low season with demand remaining strong as converters continue to build
inventories. It would be correct to say
that “the level of activity later in February may depend on the perceived
direction of raw material prices.”
Euro : $ Parity:
For the Euro $ parity the trend dependency will be defined
in the short and the medium term by the economic policies of the 2 economic
zones. US government focus on
implementing spending cuts to improve its budget deficit and at the same time
ensuring stable GDP growth, would have to be dealt with very carefully as it
simultaneously may want to decrease asset purchases, resulting in reduced
liquidity in the market. So while the
Democrats want to shift extraneous cash outlays in non-productive ventures
while ensuring greater government liquidity, asset purchases can stifle
economic activity and increase unemployment.
So both these transitional approaches cannot be done concurrently but at
best in succession. Quantitative
rationing would come in the medium term and interest rates may go up placing an
upward pressure on $ as and when this happens.
For the Eurozone, it appears that Euro should stage a recovery in the
short to medium term, because some of the ailing economies i.e. Spain, Italy
and Greece are maintaining bond yields, retiring debt, and instilling changes
in their financial systems, which should consolidate the Eurozone effort. Political mongering may continue but all
economies are working reasonably cohesively.
Also the inflation and real interest rate variables are in favor of
Euro.
It is strong likelihood that Euro will ensure a recovery and
trend over US$ in the short term but in the medium term in the backdrop of
Quantitative rationing by Obama may put $ in a stronger position and this could
occur in middle of Q2.
A level of recovery has already begun in the Euro. The blue line is indicative of a uptrend in
the Euro even though it may be very slow.
In the current economic environment a strong Euro may have a limited
impact on demand development, but it should help in that direction.
Crude Oil:
Inventories have mounted with an upturn in output putting a
downward pressure on price. As we see
from the graph the downward momentum is quite high, which would mean that Crude
prices could possibly weaken to the $90 mark and release pressure on MX-PX
supply chan. PTA producers may resist
drop in price in an effort to recover losses, which would mean that PET cost
base will only be reduced at a slow pace.
The next upswing could be brought about in 2-3 weeks.
CONCLUSION:
Going into March cost base will remain soft, Euro should
strengthen, and crude oil price weaken.
This should exert a downward pressure on PET pricing, but coming mid
March, there can be an upturn in crude and PET season commencing, demand could
return. March pricing should remain
flat.
