PARAXYLENE-PX (UP STREAM) MARKET DURING APRIL & MAY 2011

NA PX price was a roll over of March @ 85.5 cents/lb.  In contrast to this Asian settlement price of $1690 /lb fell to $1600 levels during April in wake of weak downstream demand particularly the fibre sector.  However, the NA producers were of the opinion that the relatively tight availability of PX in the market allowed a settlement of roll over, even though conditions in Asian markets had changed at a time when NA settlement was taking place.  However, the general notion of tightness of supply in the North American market is fading away with Exxon Mobil production issues at Beaumont site coming to an end.  It is believed that turnarounds at Flint Hills Resources (500 ktpa) are also ongoing.  Further an import window has also opened up, as the parity of NA PX with Asia has been ajar for some time, thus improving the likelihood of the availability of PX via imports.  Further the logic that has supported this settlement has been increase of 10-11 cents/lb of MX due to higher crude oil prices.  So what we have seen is higher feedstock prices starting to finally impact downstream Paraxylene (PX) price, which, given the narrow range of crude oil movement when crude was below $100/barrel, had remained detached from Mixed Xylenes (MX).  However, analysts are aware that the parity with Asia has generally widened too much, and this would inevitably bring down the price of PX in the NA market.  In the European market the point of view has been less clear, as downstream demand has remained a little hard to read.  Some customers had pushed back deliveries and there was lack of interest of spot material, which has lead to a marginally less than a rollover price settlement for April.  At the same time, hope of the startup of PKN Orlen PX and PTA start up at Plock in Poland, and the resumption of Gadiv is helping to ease market supply sentiments.  Another force majeure at Lotte, Wilton had been expected to last at least throughout April.  So with availability of PX at PKN Orlen in Poland, the PTA output at Plock facility will certainly ease an impending supply concerns.  So even in Europe the settlement will be at a differential with Asia + freight, which should take it to $1650 levels.  Currently complete ease in supply of PX is still not being seen. 

In the East Asian economies the PX spread over Naptha was already unsustainable and  the Japanese Earthquake further helped PX spike to over $1800; however, this was short lived and prices had fallen considerably to $1600 levels in April.  Amongst the salient factors that have resulted in price reduction on PX has been primarily the lack of demand of the downstream polyester fiber sector in China, and with plenty of new production coming up, 1000 ktpa Urumuchi’s PX startup, S-Oils 900 ktpa startup in Korea and the 45 days maintenance turnaround of CNOOC in China will boost supply in that region.  PTA producers in China, in wake of reduced downstream demand from PSF sector have brought forward their turnarounds, which has in turn again reduced demand for PX.    The Middle Eastern political unrest may have pushed up the crude oil prices to > $110/barrel levels, however, the downward correction of PX has already taken place as price of crude oil have fallen lower than $100 / barrel.  PX in the recent past has remained detached in price fluctuations of crude oil, but with price of barrel reaching $113 levels, the element of Mixed Xylenes (MX) had started playing a part in Paraxylene costing.  Since now, again, the price of crude oil have retreated the foundation which MX was providing to PX has been taken away, which would mean that PX would come under a price pressure.  In Japan, many damaged plants are back in production, however, JX’s Sendai, Kashmina refineries & Cosmo Oil’s Chiba refinery still remained closed.  This has been more than compensated with new plant outputs making their way.  The main concern for Japanese producers remains sale/production output ration in China of Polyester Staple Fiber (PSF), which seems to have slowed down amidst the restrictive economic measures taken by the Chinese government.  Clearly, now even for the Japanese producers, it is not about output, but downstream demand.  

MIXED XYLENE MARKET (UPSTREAM)

Mixed Xylenes (MX) have remained strong in the North American market and Far East.  In North America MX price went up from 4.00 $/gal to 4.27 $/gal from March to April.  This has limited trade activities with Asia, as such prices have limited profitability for exports from North American.  Increase of crude oil, reaching ~ 113 WTI, has remained the main cost driver of MX.  Further in the European markets, there has been a demand for this feedstock by Paraxylene  producers, but again, these prices have remained unattractive.  Asian markets tightened as an aftermath of the earthquake and tsunami increasing by $200/ton, however, Chinese inventories were high at that point, and with a new production of 1.2 mtpa coming up, this shortage was easily filled up.  So there was a sudden shock, which seems to have quietened down.  However, with recovery in Japan occurring at a moderate pace, there has been a slight tightening of supply, and this coupled with recent dip in crude oil prices, has taken some steam out of this feedstock, but it still has a potential to impact downstream sector if there is a reversal in crude oil in the short run. 

POLYESTER MARKET NEWS+

1. Reliance has announced that it has started the implementation phase of building a PET plant in Dajeh, Gujarat with a capacity of 540ktpa.  This plant would be commissioned during 2013-14 with the option of further expansion of 540 ktpa. 

2. China National Chemical Engineering (CNEC) has announced the plans of a JV with China Chengda Engineering and an undisclosed 3^rd party to build a polyester and a polyamide complex that would produce 1000 ktpa PTA, 500 ktpa of PET & 40 ktpa of polyamide 6,6. 

3. Indorama has announced to build by 2013 a polymerization plant at Purwakarta, Indonesia.  The plant would have a capacity of 300 ktpa. 

4. Silgan Holdings has showed interest to acquiring Graham Packaging for $4.1 billion.  This would be subject to shareholder and regulatory approvals.  This acquisition which will lead to the formation of a new entity called Silgan Graham Packaging, would lead to the development of the biggest blow molder in North America with an expected sales of $6.2 billions. 

5. Severe storms in Southeastern USA Alabama region caused the breakage in supply of TVA electrical power grid.  BP PTA at Decatur, AL and Indorama AlphaPET plants has been down since April 28. 

6. MCT Pet has initiated its PET business from 1^st April in Japan.   

7. Hengli Chemical Fibre plans to start a total of 450 ktpa plant in 2011 in China.  During the 1^st phase a 225 ktpa PET bottle resin plant will start at the end of June 2011.  Expansion site of a further 225 ktpa plant has still not been decided.  However, Hengli has very ambitious plans for an additional 800 ktpa polymerization unit at Yingkou in Liaoning province.  

MARKET NEWS

1.       Additional annualized capacity of 440,000 MTs now available in the European market. 

2.       Ouro Fina expands to include energy drinks.  It has invested $880 k to expand its portfolio.  New product is marketed under the name “Insane”.  It is currently available in Parana and Santa Catarina and is to be launched in Sao Paulo.  Maguary, a concentrated fruit juice producer in Brazil, has launched a 500 ml bottle. 

3.       The restoration of PTA production at BP & PK Orlen’s, has worked towards alleviating the supply of PTA in Europe.  However, the outage of Lotte Chemical’s has been a source of concern. 

4.       CQ PET (CEPSA), who has purchased Artenius San Roque PET plant, has restarted production on March 17^th, and it now understood to be running at nameplate annualized capacity of 165 ktpa. 

5.       Additional online capacity of San Roque and Alconaphtha, at Kaliningrade, will allow for an availability of 344,000 MT’s of PET resin in Europe.  It should be noted that 40% of Alconaptha’s capacity will be for local consumption. 

6.       Indorama has announced that it plans to build an additional 200ktpa PET plant in Europe at a brownfield location.  The expansion is scheduled to be completed in 2013 and would take its regional capacity of 1.3 million tons. 

7.       The purchase of PTA/PET business of Eastman chemicals at Columbia SC, by DAK, Americas was completed by end January.  The deal includes PET production capacity at 2 plants totaling 675 ktpa and PTA capacity of 570-600ktpa of Integrex technology developed by Eastman at Columbia, SC.  Eastman will retain PTA production of estimated 250ktpa at Kingsport TN.

8.       Far Eastern New Century (previously Far Eastern textile) will set up a 60:40 JV with Sinopec yizheng Chemical fiber for 100 ktpa PTA project. 

9.       A planned turnaround at Ineos Antwerp has kept Ineos out of the spot market all year so far. 

10.   Selenis is expected to begin production at its facility in Montreal before end of March with product to trade in Q2

11.   SK Eurochem has been acquired by Indorama.  

Pepsi ‘green’ bottle made of corn husks, pine bark

PepsiCo Inc has developed a bottle made from plant-based, renewable resources that is fully recyclable, and will start using it in a test program next year.

The company’s new “green” bottle is currently being made from materials such as switch grass, pine bark and corn husks. In the future, components for the bottle may include orange and potato peels, oat hulls and other byproducts left over from the company’s food business.

PepsiCo’s chief scientific officer told the Reuters Food and Agriculture Summit Monday that the company was working on ways to reuse such waste.

On Tuesday, PepsiCo announced that it has found ways to create a molecular structure identical to petroleum-based PET for a bottle that looks, feels and protects products just like existing PET containers.

The company said it would pilot production of the new bottle in 2012 and then move to full-scale commercialization if it was successful.

Rival Coca-Cola Co already produces a “plant bottle,” which is 30 percent made with sugar cane. It is expanding use of that packaging and efforts to convert the remaining 70 percent of its bottle to a plant-based material.

PET PACKAGING RESIN (DOWNSTREAM)

The utilization rates for PET producers were up in the high 80’s from low 80’s in Q1 of 2011 as compared to the ending quarter of 2010 as demand was strong during this time.  This can be true as some packaging options were changed to PET bottles.  Tropicana’s change PET bottles from cartons was indicative of this.  There is a forecast of higher demand as we head into Q2, as the high season approaches.  Although the output rates have been marginally higher there has been no news of production curtailment due to raw material shortages, mainly PTA and PX shortages.  In the European market, prices have steadily crept up to the mid 1600 Euro level for delivered resin.  Preformers / bottlers seem to be caught in the middle, with fillers resisting price increases.  However, inventories in the supply chain are very thin, as a price drop was expected after lunar year holidays.  There was a temporary price hike hiatus but then again gradually in light of rising raw materials PET prices have started followed.  This has been difficult for the converters to pass along, specifically the small to medium converters, which have lower bargaining leverage with fillers.  A notion also persists that with such price increases substitution to other packaging types i.e., glass, aluminum should be considered, however, high entry barriers due to high capital investment appears to dampen the chances of such a switch. 

The 6.5% anti-dumping duty imposed on Turkish imports from many far eastern suppliers has been allowed to lapse, as the consumption of 240 ktpa, outstrips the production capacity of 140 ktpa.  Imports are essential in the short term.  Some Korean producers feel that in light of current feedstock prices, PET prices could rise as high as $2000.  Earlier, faced with raw material shortages, it was felt that many European customers were bound to purchase resin; however, this seems to have changed with the lifting of force majeure of BP PTA plant.  In the Chinese market in comparison to fiber business, PET resin makers for packaging are still facing some margin issues, which they would like to recover.  FOB’s have been hovering around high $1800 levels, and with pressure on PTA, brought about with the PX shortage being faced by Nippon’s PX plant of Japan, there is an upward trend on pricing.  Chinese 0.25% increase of interest rates has had limited impact on the equities and future market, and it appears that a more stringent action may be necessary to bring prices into check.  Therefore, the notion of price correction looms in the future.  

POLYESTER STAPLE (DOWNSTREAM)

For the Far Eastern economies, finished inventories are still low, and with the textile season coming up there would be build up of downstream demand.  This is evidenced by the fact that textile grade resin sales to output ratio has increased to over 100% over the last couple of weeks, as downstream customers try to cover their order backlogs.  Further there is also a notion that price increases are inevitable, so purchasing activities have increased.  Production levels remain very healthy and it is reported that finished product inventories remain low.

In the North American market, the operating rates are very high at the 100% level due to strong demand from the fiberfill and the non-woven sector.  Further finished goods inventories are declining, which shows that demand pull is considerable.  Even though the staple imports have declined by 30-40%, however, it appears that with finished goods inventories decreasing, imports could go up.  It is worth noting that polyester staple prices have gone up consecutively over the last 7 months, and February experienced a 7-8 cents increase and March is in the region of 8 cents.  This is unprecedented, and current circumstances dictates that prices should further go up. For West Europe, the downstream demand is a little variable, with good demand in non-woven’s but average for hygiene business as well as automobile sector.  However, with a limitation on the supply of PTA, the supply and demand fundamentals are pushing up the prices gradually.  Further raw material pricing is somewhat steady with PTA strong but MEG a bit lackluster, thus ensuring a stable composite cost.