The global economic downturn has taken a heavy toll on the PET chain, with producers feeling pressure from both upstream and downstream.
The record high oil prices of 2008 led to volatile feedstock prices, with recession and uncertainty weakening demand. The dramatic increase in PET recycling further impacted demand for PET feedstocks.
Especially hard hit in 2008 were the West European and North American PET Bottle Grade markets, which faced a major reversal in consumption growth. Having previously averaged annual growth of over 5% in each region, demand dropped sharply due to a combination of high derivative prices, de-stocking, lower household expenditure and light-weighting. The mineral water sector was hardest hit in 2008, as a result of reduced household expenditure on items deemed to be non-essential, and increasing criticism over environmental concerns.
The cyclically high operating rates and favourable market conditions enjoyed in much of the PET chain over 2005-2006 have resulted in new capacity which came to market in 2008, unfortunately coinciding with the downturn in demand.
A dramatic increase in PET recycling has further impacted on demand upstream. High prices contributed to a doubling in PET recycling over the last four years to six million tons in 2008. Recycling will continue to increase despite the recent collapse in prices however. Most growth has been in the recycling of post-consumer PET bottles into fibre. China accounts for around three quarters of global recycling, leading the market both in terms of its own recycle rate, and in the import of post-consumer PET from other regions.
The combined effects of PET recycling, lower demand growth and capacity additions forced PTA operating rates down by 5% in 2008. Annual consumption growth fell to 3%, the lowest level on record, while capacity additions over the last two years totaled 5.6 million tons, representing a 13% increase over 2006. Nearly nine million tons of new capacity is currently under development, which will further depress operating rates until 2011-2012.
The substitution of DMT by PTA accelerated over 2007-8. DMT-based consumers lost competitiveness due to the aging of their facilities and the higher energy costs incurred in polymerizing DMT. Global DMT demand fell by over ten percent in 2008, and producers in Asia and Europe were forced to exit the market, taking out nearly 500 000 tons per year of capacity.
MEG consumption experienced a slowdown of unprecedented severity in 2008 with global growth falling below 1%, hit by weakness in both the PET and automotive sectors. Operating rates meanwhile fell by 5% in 2008 due to significant capacity additions in the Middle East and Asia Pacific. A further three million tons per year of capacity will be added in the next two years in the Middle East. The coincidence of this expansion and low demand growth will accelerate the long-anticipated closure of laggard plants in other regions.
The global economic downturn has taken a heavy toll on the PET chain, with producers feeling pressure from both upstream and downstream.