Higher Asian PET Prices Should Help U.S. Increases

Higher Asian PET Prices Should Help U.S. Increases

Asian polyethylene terephthalate (PET) prices have surged in recent weeks as a result of production cutbacks prompted by a steep rise in naphtha and para-xylene prices, market sources say. Asian PET is on offer at $ 900-$ 1,100/m.t. c&f Asia, more than 10% above year-end 2003 levels.

Asian prices have moved above U.S. levels for the first time in several years, and should help raise U.S. operating rates by curtailing Asian imports, analysts say. The high level of Asian PET imports has hurt the ability of U.S. producers to raise prices, they say.

U.S. PET contract list prices are 50 cts-54 cts/lb del, but transaction prices are closer to 48 cts-52 cts/lb del, sources say. An attempt by U.S. producers to raise prices by 3 cts/lb in October failed because of oversupply and weak demand, and a 6-cts/lb increase announced for January 1 has been scaled back to 3 cts/lb, market sources say. PET margins have fallen to their lowest level since 1997, says Leslie Ravitz, analyst at Morgan Stanley (New York).

PET producers will likely renew attempts for a 6-cts/lb hike, or even 8 cts/lb in the second quarter in an attempt to counter higher feedstock costs, analysts say. "P-xylene and ethylene glycol costs have remained fairly stable in January despite raw material increases, but are likely to move up in February and March," says P.J. Juvekar, analyst at Citigroup Smith Barney (New York).

Reduced PET imports should help lift operating rates in the U.S., says Edgar Acosta, consultant at DeWitt & Co. (Houston). This is unlikely to continue in the longer term, however, because Asia remains oversupplied and imports will likely resume, analysts say. Higher prices may slow demand and lure back imports, Acosta says. North American PET demand growth is also expected to slow from 8%-10%/year historically, to 7.8% this year, as high selling prices are expected to temper demand, he says. Average operating rates will rise, however, to 88%-90%, because of limited new capacity additions, he adds.

The only announced North American expansion is by M&G Polymer (Houston), which has announced plans to raise PET production at Altamira, Mexico, from 128,000 m.t./year, to 438,000 m.t./year, by early in the second quarter. M&G says it does not expect the increased production to have a significant impact on the market balance because of double-digit demand growth in PET markets in Mexico. Also, the U.S. is projected to grow at least 5%/year, which "is sufficient to cause a large demand for more resin" because of its size, says M&G CEO Marco Ghisolfi. M&G says it is also considering building a new PET plant in Brazil, possibly at Recife. That project is conditional upon Brazil removing policies that "penalize local investments," Ghisolfi says.