PET SUFFERING FROM OVERSUPPLY
The PET chain continues to suffer from oversupply and low margins, at a time when most other sectors of the chemical industry are highly utilised and profitable. The pressure on margins on PET resin and fibre has continued through most of the industry cycle, despite the ongoing high growth rates. Producers of PET resin and fibre have struggled to pass through the high upstream prices created by peak oil and gasoline numbers, as well as the global shortness of MEG.
Against this commercial background, the latest Polyester and Intermediates by ChemSystems report is very timely. Published in June 2007, the report investigates the market and growth profile of PTA, DMT, Ethylene Oxide, MEG, PET Melt Phase and PET Bottle Grade, and details the expected schedule of capacity developments in all regions. PET melt phase, or amorphous PET, is the raw material for the production of polyester fibre and films, as well as PET bottle grade resin. The analysis also models the increased recycling of PET, and the effect on growth in raw materials consumption.
The report finds that, while some elements of the PET industry such as fibre production are emerging from a long period of oversupply, others such as PTA are on the brink of the abyss. PTA capacity in Asia alone increased by 3.5 million tons per year in 2006, and another 6 million tons per year will be added over 2007-2008. PTA operating rates are forecast to hit 10 year lows in 2009. MEG operating rates will also decline from their sustained high rates as major new plants come on stream in the Middle East. Recently, MEG operating rates have enjoyed an unprecedented run at high levels, due in part to the delay of certain large plants in the Middle East. This is set to continue in 2007 with MEG operating rates set to remain at 90% this year, before dropping off sharply over 2008-2010.
Further downstream, the outlook is for PET resin operating rates to decline sharply due to major new capacity additions in Europe and the Americas. The high prices of PET intermediates have accelerated the rate of recycling, which now has a measurable impact on the consumption of raw materials. The demand for recyclate in China, for example, has drawn in bottle scrap from the major PET resin markets worldwide.
The PET bottle grade industry in the major Western markets has been paralysed for some years by inactivity among the leading producers, some of whom sought to exit the business. Imports from Asia, domestic oversupply and a highly concentrated consumer base all contributed to low PET margins in recent years. New strategies have emerged however, with a focus on retrenchment in key markets, consolidation, and process integration. From the chaos of the highly fragmented West European market, La Seda de Barcelona has emerged as a new leader, acquiring the businesses of many of its smaller and larger competitors, and investing heavily both upstream and downstream. Until 2005, La Seda de Barcelona was a small, single-site PET producer, but has since become the market leading PET producer, and acquired substantial PTA assets.
The report finds that operating rates for PTA and PET bottle grade are declining towards a trough around 2009-2010. Operating rates for PET Melt Phase are however on the increase, as a result in a slowdown in the construction of new fibre plants in China. Global consumption of PET melt phase is expected to increase from 42 million tons in 2006 to 68 million tons by 2015.
Global Capacity Development
Asia will continue to dominate global capacity due to its unrivalled competitive advantage in fibre production. Growth in PET bottle grade production for export is slowing due to anti-dumping duties and the development of competitive manufacturing facilities in markets such as Eastern Europe and South America which were previously major importers. Capacity development in the Middle East is restricted by the region’s comparatively high labour costs. Some developments are ongoing, however, although mainly for local and short-haul supply of PET bottle grade resin. Capacity development in other regions will mainly be to supply domestic PET bottle grade market growth.
Global PET Melt Phase Capacity
Capacity for PET bottle grade production is distributed much more evenly than that of PET melt phase, which is heavily concentrated in Asia for fibre production. PET bottle grade capacity will continue to develop in all areas as the local markets grow sufficiently large to justify investments in competitively sized plants. PET bottle grade capacity in Asia roughly doubled over 2000-2005, mainly due to a surge in investment in China. The rate of capacity addition there has declined, however, and growth in the forecast period will be more in line with consumption. Exports of PET bottle grade from Asia to Europe and the Americas have long troubled Western producers, without generating much profit for the Asian exporters. Producers in Western Europe and the United States are looking to better vertical integration and asset improvement to defend their local market position. The forecast shows the continued development of PET capacity in proportion to each region’s consumption, and therefore a more even spread of capacity globally than for PET melt phase.
Global PET Bottle Grade Capacity
Consumption growth to remain strong
PET bottle grade remains the fastest growing of the major polymers in almost all regions, while demand for PET into fibre production has stalled in all regions except Asia, the Middle East and South America. The Middle East is set to play only a minor role in the global PET market, but will export increasing volumes of para-xylene. Around two-thirds of global PET demand is in Asia, and three-quarters of that volume is consumed as fibre. Chinese consumption of PET melt phase rose to 40 percent of the global total in 2006. Chinese polyester fibre serves textile and garment production globally, and increasingly for the local market as regional GDP growth drives higher consumption. Higher GDP is also driving rapid growth in PET bottle grade consumption in Asia, supporting the market’s long term growth profile as the major Western markets mature.
PTA demand is driven by the production of PET melt phase, and the smaller volumes consumed in thermosetting resins and polybutylene terephthalate have little impact on its growth outlook. Similarly, the demand for MEG into non-polyester applications such as anti-freeze is now less than 20 percent of the global market, and of is decreasing importance due to the comparatively low growth rate in these sectors.
PET bottle grade will continue to grow more quickly than the polyester fibre sector, and will thus consume a growing proportion of PET melt phase in future. Demand in the film sector will grow most slowly.
Global PET Melt Phase Consumption
Supply, Demand and Trade
Aside from polyester fibre producers, operators at all other stages of the PET chain face increasingly difficult supply/demand fundamentals over the coming years. Significant preparations have been made ahead of the changes however. MEG producers have rationalised some older plants, and invested in low cost assets in the Middle East. A number of smaller MEG plants are expected to close during the upcoming trough however, leaving more ethylene oxide available for other derivatives. Efforts among PET bottle grade producers have focussed on industry consolidation and the development of lower cost technologies. Comparatively few plants have closed, however. The growth rate of PET bottle grade is such that excess capacity is soon taken up by new demand, and the expected closure of older plants will be masked by the arrival of new and larger units. The PET bottle grade industry remains on a comparatively steep part of the learning curve relative to other major polymers, and there is scope for significant cost reduction through enhancements in plant size and vertical integration.
The report Petrochemical Market Dynamics: Polyester and Intermediates is published by Nexant as part of its ChemSystems programs. Subscriptions to the programs are available from www.chemsystems.com. The report is also available without subscription for $13 500. For further details please contact Stewart Hardy at +44 207 950 1592 or at shardy@nexant.com.
©2007 Nexant, Inc.
