Insight Focus

  • PTA and MEG futures rise on another weekly gain for the crude oil markets.
  • High polyester operating rates underpinning PTA demand under pressure.
  • PET resin export margins turn negative as new capacity weighs on market.

PTA Futures and Forward Curve

  • PTA futures continued to rally, driven upwards by further crude oil gains, as Brent crude surpassed $84/bbl and WTI approached the $80/bbl threshold.
  • Major financial institutions are now predicting oil prices to rise to between $86-92/bbl by year-end, as record-high oil demand and lowered supply leads to a large market deficit.
  • PX prices moved higher last week tracking crude oil movement, maintaining a high PXN spread, averaging over $435 for the week.
  • PTA fundamentals weakened though, as a series of expected plant restarts increased supply-side pressure, with the PX-PTA spread narrowing to a 4-month low.
  • On the demand side, weak downstream polyester demand and accumulated inventories could place downward pressure on the operating rate of polyester plants, particularly traditional post-peak textile season (Sept/Oct).
  • The forward curve’s downward slope has flattened slightly over the past week; by Friday the Jan’24 contract was trading at a reduced RMB 64/tonne discount to the current month.

undefined

MEG Futures and Forward Curve

  • MEG Futures increased on the back off stronger crude, main contract months were up 1.45-1.6% last week.
  • Market fundamentals continued to show improvement, as some units shut for maintenance; operating rates are expected to soften in August.
  • Although main port inventories decreased 2% to 986k tonnes, breaking a string of consecutive weekly increases, port inventories remain high.
  • Future price direction will not only rely on crude’s path over the coming months but whether the high polyester operating rates can sustain in the face of slow textile offtake.
  • The MEG forward curve remains in contango over the next 12-months. By Friday the Jan’24 contract was holding a RMB 170/tonne premium to the current month.

undefined

PET Resin Export – Raw Material Spread and Forward Curve

  • Chinese PET resin export prices made a very slight move upwards towards the back of last week, to an average of USD 910/tonne representing a USD 5/tonne increase.
  • The weekly average PET resin physical differential to future feedstock costs fell further, down USD 8/tonne to average USD 4/tonne for the week. However, by Friday the daily spread had fallen into negative territory, a new multi-year low.
  • The raw material cost forward curve is no longer backwardated; at Friday’s close, Jan’24 raw material costs on par to the current month’s contract, the next most liquid contract months of March and May were also on par with current levels.

undefined

Concluding Thoughts

  • Declining export sales and soaring feedstock costs have crushed the physical differential to future raw material prices.
  • With a negative differential, and a loss-making spread to spot raw materials, many will eagerly be looking towards the off-peak maintenance season in September, through to November.
  • Recent new capacity additions have weighed heavy on the market, with Sanfame bringing both its 750k tonne line on-stream in quick succession.
  • Further additions from Yisheng (500kta) and Billion (600kta) are expected in H2’23, potentially compounding oversupply issues and keeping margins low.
  • As a result, PET resin export prices are expected to track raw material costs closely through to Q1’24.

For PET hedging enquiries, please contact the risk management desk at MKirby@czarnikow.com.  

For research and analysis questions, please get in touch with GLamb@czarnikow.com. 

Gareth Lamb

Gareth joined CZ in 2021 and is CZ’s PET analyst and recycling specialist. As well as regularly reporting on key market trends and dynamics, Gareth is also developing new research products and analytics within the PET and rPET space. Prior to joining CZ, Gareth led Wood Mackenzie’s PET research service and was Senior Consultant at IHS Markit, working within the petrochemical consulting team. Dr. Lamb graduated from the University of St Andrews with a PhD in organometallic chemistry; and has a masters of Chemistry degree from the University of Liverpool.

More from this author