Market and product

SINGPORE (ICIS)--Asia’s purified terephthalic acid (PTA) producers are mulling further cutbacks in production to stem losses being incurred since last month, given a sharper slump in their product prices compared to feedstock paraxylene (PX), industry sources said on Friday.

The price spread between PTA and PX has narrowed to $90-110/tonne (€67-81/tonne) in November, compared with $300-400/tonne seen in January to April 2011, according to ICIS. (Please see price chart below)

“If the situation remains, a larger scale of production cutbacks is expected across Asia in December, which will finally underpin PTA prices and bring down PX demand and prices,” a Shanghai-based trader said.

From a year high seen in late March, PTA values have tumbled 31% to $1,030-1,080/tonne CFR China Main Port (CMP) on 11 November because of PTA capacity expansion, poor macroeconomic environment and soft downstream demand, particularly, in China. Spot PX prices declined 20% to $1,435-1,445/tonne CFR CMP over the same period, ICIS data showed.

A minimum spread of $150-180/tonne is required for most Asia PTA producers, market sources said, but added that newly built plants in China can operate at lower production cost of around $110-120/tonne.

“The current poor margins are rooted from the downbeat sentiment, rather than market fundamentals,” said another northeast Asia producer.

Concerns about the eurozone debt crisis and weakness in the US economy continue to hound the equities and commodities markets.

The bearish sentiment is being exacerbated by a domestic credit crunch in China and a slowing down of activities in the country's textile industry.

PTA is a raw material used in the manufacture of polyester, which is mainly used in the textile industry.

“It is of little hope that our margins to improve markedly in the next three months,” said the second northeast Asian PTA producer.

Negative margins for PTA makers were last recorded in the first five months of 2009, when the world economy was in the grips of recession.

Some PTA producers have brought forward the turnaround schedule for their facilities, given poor market economics.

“No point to keep running a [PTA] plant, if it is making loss[es],” said a major southeast Asia producer said.

The producer said it plans to introduce a cost factor into contract formula for next year’s term negotiation as the current spot price-based formula is not able to protect its margins.

Taiwan’s China American Petrochemical Co (CAPCO) and Korea’s Sam Nam Petrochemical were the first producers to shut production at some of their PTA facilities, when product margins turned negative.

CAPCO shut its 250,000 tonne/year No 2 plant indefinitely at the end of October, and also shut its 400,000 tonne/year No 5 unit for five days on 9-13 November.

On 14 November, the company took its 250,000 tonne/year No 4 unit off line for an indefinite period.

Sam Nam, on the other hand, shut its 350,000 tonne/year No 1 QTA (qualified terephthalic acid) on 28 October. It initially planned a month-long shutdown, but decided to extend the period to two months up to end-December, said a company source.

China’s Sinopec and Xianglu Petrochemical, Japan’s Mitsubishi Chemical, Thailand’s Indorama Petrochemical followed suit.

Early this month, Sinopec Shanghai Petrochemical shut its 350,000 tonne/year PTA unit for a month of maintenance, while Sinopec Yizheng Petrochemical took its 350,000 tonne/year No 1 PTA unit off line on 10 November for a three-week shutdown, said a source from Sinopec.

Mitsubishi Chemical shut one of its two 330,000 tonne/year units in Jawa Barat, Indonesia in mid-November for four weeks of maintenance. The company also brought forward a planned month-long turnaround at its 800,000 tonne/year No 2 plant in Haldia, India that was initially planned for early next year.

In Thailand, Indorama will shut its 700,000 tonne/year Rayong plant on 20 November for seven days, while in China, Xianglu Petrochemical intends to shut its 1.65m tonne/year plant in Fujian province on 25 November for the same duration.

Also in China, Yisheng Petrochemical is also considering shutting its 600,000 tonne/year No 1 PTA plant at Zhejiang province, and cut production at its 2.2m tonne/year plant in Dalian in December

Zhejiang Yuandong Petrochemical is also mulling cut operating rates at its three PTA units, with a combined capacity of 1.8m tonnes/year, but would like to monitor the market for another couple of weeks, said a company source.

The recent plant shutdowns affect some 6.37m tonnes/year of regional supply in November, representing 15% of Asia’s total capacity of 42.63m tonnes/year this year. (Please see table). The computation excludes facilities running at reduced rates.

In Taiwan and South Korea, some major PTA makers are concerned about weakening their negotiating position for feedstock PX contracts, that they continue to run their PTA plants at more than 90% of capacity.

PTA producers in the region are competing for feedstock PX, which is currently in short supply, said a third major northeast Asian producer.

If PTA makers cut their PX contract volumes for the rest of 2011 because of production cutbacks, this will weaken their power to negotiate for PX contracts next year, he said.

“If it is not the fourth quarter, we shall have already reduced our operating rates,” he said.

Source: ICIS