MEG (UPSTREAM) APRIL & MAY 2011

The domestic demand of MEG has started to pick up significantly as PET season is underway.  Amidst the tight monetary policy spot prices in China softened to $1060-1070 before recovering to $1100 level.  This weakness in the market allowed MEGlobal, Sabic and Shell to reduce their prices.  However, the supply/demand balance in the USA in light of Old World turnaround and scheduled shutdown of Shell at Saotford, Canada, MEG inventories are considerably tight.  Further Huntsman was also out of the market with shortages of EO, which has somewhat ensured MEG tightness.  Just reviewing the supply position producers are trying to roll over the prices for May.  However, these market players have a close eye on the Far Eastern economies, and may want to maintain parity with Asia, so that the composite cost of production of Polyester remains under check, and not open an arbitrage window for imports.  In Europe a similar situation of turnarounds at Ineos Oxide at Antwerp, PKN Orlen at Plock, Ineos Oxide at Dormagen, BASF and Clariant sales curtailment in face of their turnarounds has considerably tightened output.  However, demand for MEG has been rather constrained, which has been brought about by reduced demand of the PET sector due to availability of PTA.  The main factor to contend with in this market is resumption of PET demand, which would create a demand pull on MEG as PET high season approaches. 

The polyester fiber industry remains uncertain for the Indian market.  However, PET resin demand has started picking up, and PSF demand remains reasonable with filament demand ailing.  Downstream users are reluctant to accept high prices caused by increased raw material costs.  Many consumers are holding back purchases with the hope that prices may fall further.  Operating rates in Taiwan and Korea remain high as domestic demand has gone up with the onset of the PET season.  The availability has tightened considerably as LG Chem took down its 125ktpa plant in Daesan for a 30 day turnaround and Samsung has also started its 120 ktpa turnaround in Daesan as well.  Nan Ya’s No. 1 350 ktpa plant went down due to mechanical issues.  Therefore, MEG supplies have considerably tightened, but then this represents a very small portion of the production pool and can only have marginal impact on supply.  For China a multitude of reasons have transpiring to reduce demand.  Firstly PX prices have been moving downwards and subsequently MEG.  When the prices were on the rise for PTA (PX), speculative interest in MEG also drove its price upwards.  Now that the reverse is occurring, we see MEG move in the same direction as PX and PTA.  Similarly lowered demand due to power outages in Jiangsu and Zhejiang provinces has lowered demand.  Further foreign debt quotas has also hurt the intermediate markets, as some producers and traders have not been able to raise LC in foreign currencies, which are restricted due to credit limits.  Even with many Middle Eastern turnarounds happening, mainly in KSA, Globally a tight supply position remains for MEG, and this is underscored by the increase of MEG prices once it had reached $1060-1070 and then made a recovery back to $1100-1110 cfr levels. 

PTA (UPSTREAM) APRIL & MAY 2011

Paraxylene settled at a rollover at 85.5 cents/lb in the NA market, however, PTA settled a little higher at 71.50 cents/lb against March’s 70.97 cents/lb. New factors in the formula price had started factoring in light of rising crude oil prices; finally a cost push from MX was being felt.  However, downstream demand is moderate compared to March.  Many PTA producers were wary of the fact that PX settlement was high during April, which now could pose a threat of imports into the North American market, given the rapid decline of this feedstock in the Asian market.  In Europe, Lotte UK another force majeure due to catalyst change is putting strain on supply of PTA.  Further it was expected that 600 ktpa startup of PKN Orlen would suddenly ease the market, given that Cespa in Spain’s has diverted all production to San Roque PET facility and is out of the market for PTA supply.  However, repetitive outages of Lotte has ensured a tight PTA supply position as PKN Orlen is expected to commence commercial output by May.

The general notion in the Northeast Asian market has been that once textile inventories reach a low threshold, a demand pull would emerge for polyester.  This remains to be seen.  Some source suggested that the inventories of PTA had fallen to a low level, and that resumption of demand should be imminent.  However, other sources contended that price needed to fall significantly, before polyester operating rates could be increased.  Further Chinese interest rates were finally having a dampening impact on polyester demand.  Further Yizheng Ningbo plans to start up its 2000 ktpa PTA plant by mid 2011; this additional supply will result in a downward pressure on PTA prices.  Operating rates in China remained in the 70-80% in April, where as Korean operating rates remained in the region of 90%.  Similarly Taiwanese facilities maintained a high operating rate.  Also the intermittent shutdown of Capco and FCFC has allowed the supply to remain tight.  PTA inventories in Chinese market remains within in a normal range.  Some new huge expansions in the filament sector should allow for increase in demand in the medium term.  However, the economic climate brought about by governmental measures of repeatedly increase interest rates, has now surely affected downstream demand and subsequently plant productivities.  Further there have been electrical power limitations in Jiangsu and Zhejiang provinces which have negatively impacted the plant productivities.  

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.