Insight Focus
PTA and MEG drop sharply following a global sell-off in global stock and commodities.
Chinese PET resin export prices also ease but raw material fall faster, producers recover margin.
Spreads are expected to come under renewed pressure with new capacity and offseason slowdown.
PTA Futures and Forward Curve
PTA futures continued their tumultuous downfall last week, with the main Sept contract dropping a further 4.6%, down over 8% since July’s recent peak.
Much of the downturn is related to weakness in the upstream markets, with crude slumping in recent weeks. That said, Brent oil prices rebounded to USD 78/bbl by Friday, up 3% versus the previous week’s close, although still considerably down from over USD 87/bbl just one month earlier.
Bullish crude oil sentiment is gaining, following better than expected US unemployment figures, and a recovery in global stock markets; any large-scale Iranian retaliation against Israel could also drive prices higher.
Weaker PX fundamentals led to the PX-N spread to narrow by around USD 15/tonne last week; the PTA-PX CFR spread also shrunk by around USD 5/tonne to USD 76/tonne.
In both cases increased supply and inventory accumulation was a main factor, with PTA operating rates increasing following turnarounds and slower downstream restocking reduced polyester production. Although PET resin rates look now to be coming off their lows.
With the recent near-term weakness, the PTA forward curve is displaying a slight forward premium. The Jan’25 holds a RMB 38/tonne premium from the Sept’24 contract.
MEG Futures and Forward Curve
MEG Futures also fell sharply, following the market wide fall in stock and commodities, losing 2.5-3% on main month contracts.
East China main port inventories were stable, decreasing by just 0.4% to 620k tonnes last Friday, with potential for further reduction in August due to projected low MEG cargo arrivals at main ports.
Overall, MEG fundamentals remain healthy, further maintenance turnarounds in August will keep supply tight, even with low polyester operating rates, market fundamentals look robust.
Near-term pricing will largely be driven by the macro-environment with the MEG forward curve relatively flat through to Q2’24. Forward premium has narrowed, with the Jan’25 contract having just a RMB 8/tonne premium over Sept’24. Further forward the May’25 contract is also at similar levels.
PET Resin Export – Raw Material Spread and Forward Curve
Chinese PET resin export prices gave ground last week as feedstock costs slumped, decreasing by around USD 15/tonne to average USD 890/tonne by Friday, although sub-880 prices were also heard on the market from some producers.
The average weekly PET resin physical differential against raw material future costs increased USD 8/tonne to plus USD 13/tonne last week. By Friday, the differential had continued to increase to plus USD 21/tonne, its highest level for 12-months.
The raw material cost forward curve remains flat out the next 12 months, with just a USD 5/tonne premium through the main Sept’24, Jan’25 and May’25 forward contracts.
Concluding Thoughts
Production cuts and strong export flows have kept factory stock levels at healthy levels of just under 14 days.
As a result, feedstock costs have fallen at a faster rate than PET resin prices, leading to margin recovery for producers.
Price stability may also be a factor to why Chinese producers have been able to increase spreads, with buyers accepting the price range experienced over the last 10-months rather than actively pushing for heavier discounts.
Although export order intake in July remained above 400k tonnes, levels have eased since July and are expected to continue to weaken into the approaching off-season.
Coupled with expectations of significant further capacity additions in Q3, beyond the short-term strength market fundamentals have not changed, and spreads are expected to come under pressure once again.
Even if container freight does continue to ease buyers are likely to take a wait-and-see approach, rather than immediate bookings.
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.
