Insight Focus

  • PTA and MEG futures drop following weakening demand and new COVID lockdowns.
  • PET raw material forward curve shows lower cost base achievable in Q4 and into 2023.
  • PET resin exports face recessionary headwinds as prices and margin continue to weaken.

PTA Futures and Forward Curve

  • PTA futures slumped towards the end of last week, with the Nov’22 PTA down over 3%, amid weakening demand and a wave of new COVID lockdowns across China.
  • A modest increase in PTA liquidity and weakening PTA demand, following lower polyester operating rates, is expected to keep pressure on prices and PTA-PX spreads.
  • The PTA forward curve is now heavily backwardated in the near-term. The Jan’23 contract now trades at a 330RMB/mt discount to the current month.

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MEG Futures and Forward Curve 

MEG futures dived last week, pressed by weakening downstream demand and concerns around China’s continuing zero-COVID policy as dozens of cities go back into lockdown.

Operating rates and supply have gradually recovered in recent weeks, new capacity at Yulin Chemical’s new coal-to-chemical mega complex is expected to come on-stream by end of October.

Supply recovery comes at a time when downstream textile demand is dwindling, and the bottling sector begins off-season shutdowns.

The MEG market looks set to remain under pressure, although the Jan’23 contract closed last week at a small RMB 40/tonne premium to the current month.

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PET Resin Export – Raw Material Spread and Forward Curve

  • Chinese PET resin export prices fell further last week, declining 30 USD/mt on the previous week and to 920USD/mt, with sub-900 USD/mt prices now in sight.
  • The weekly average PET resin physical differential to feedstock costs also steadily declined by USD 8/tonne on softer demand, to USD 128/tonne. By Friday, the daily spread was around USD 126/tonne.
  • The PET resin raw material forward curve remains in backwardation with the Jan’23 contract showing a USD 36/tonne discount to the current month.

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Concluding Thoughts

  • Whilst the forward curve for feedstock costs remains backwardated, a large part of this discount is likely to be seen in Q4’22 before the cost profile flattens out into 2023.
  • Greater interest in Asian exports is being shown by some large foreign buyers. However, new order intake remains sluggish with the demand outlook threatened by a potential new global recession.
  • The addition of new production capacity over the coming months will add to the downward pressure, with H1 2023 margins expected to be lower than those in 2022.
  • Current fundamentals indicate that prices could be expected to fall below the USD 900/tonne level over the coming month, potentially catalysing a round of fresh buying activity.
  • A worsening of China’s current COVID outbreak and lockdown restrictions could also risk weakening domestic sales, even in the off-season, lengthening availability and forcing producers to discount further.

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. 

Other Insights That May Be of Interest…

European PET Market View: European PET Producers Facing Losses Contemplate Further Shutdowns  

Plastics and Sustainability Trends in September 2022  

PET Resin Trade Flows: Korean PET Exporters Eye Greater European Share in 2023  

Will Plummeting Ocean Freight Boost Asian PET Export Demand? 

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.

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