Insight Focus
Turmoil in the Middle East creates massive price risk for petrochemicals, including PTA, MEG, and PET resin. Chinese PET resin export prices keep rangebound, as production cuts support short-term fundamentals. Line restarts and new capacity will continue to pressure Asian PET profitability through H2’24.
PTA Futures and Forward Curve
PTA futures experienced a slight recovery last week, rebounding less than half a percent from recent lows.
Brent crude oil prices were hovering just below USD 80/bbl last Friday after fluctuating between USD 78.50/bbl, as high as USD 82/bbl during the week.
Escalating tensions between Israel and Iran have added fresh volatility into the market, and a return of the war premium to crude markets, noticeably absent in recent weeks.
Traders are now betting on oil prices reaching USD 110-130/bbl in November, with last week seeing the highest single-day volume of call options purchased since April.
Weaker naphtha market fundamentals led to the PX-N spread widening by over USD10/tonne last week, whilst the PTA-PX CFR spread narrowed by USD 5/tonne to USD 81/tonne.
PTA plant operating rates remained high and relatively stable, with few near-term maintenance plans.
Expectations are for inventories to build due to downstream polyester demand remaining subdued.
PTA forward curve remains essentially flat with both the Sept’24 and Jan’25 contracts at similar levels, and the May’25 futures contract at a RMB 10/tonne discount from these levels.
MEG Futures and Forward Curve
Main contract months for the MEG Futures strengthened last week, adding over 1% on average.
East China main port inventories increased strongly by around 7.3% to 623k tonnes last Friday, with daily offtake also rebounding after previous sharp declines.
MEG cargo arrivals at main ports are projected to remain relatively low through Q3 due to production cuts at Saudi facilities.
Domestic supply also remains tight with several large-scale plants moving into maintenance over the last week and others in temporary shutdown or running at reduced operating rates.
Further maintenance turnarounds in August will keep supply tight, even with low polyester operating rates market fundamentals look robust in the near-term.
The MEG forward curve shows only a slight forward premium through H1’24, with the Jan’25 contract with only a RMB 34/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
Despite downward pressure from raw materials earlier in the week, Chinese PET resin export prices ultimately kept rangebound last week, increasing by just USD 5/tonne to average USD 905/tonne by Friday.
The average weekly PET resin physical differential against raw material future costs kept flat at plus USD 6/tonne last week. By Friday, the differential had fallen slightly to plus USD 2/tonne.
The raw material cost forward curve remains flat out the next 12 months, with no premium through the main Sept’24, Jan’25 and May’25 forward contracts.
Concluding Thoughts
At least in the short-term, future Asian PET resin prices are going to be strongly determined by the any further deterioration of geopolitics in Middle East and the impact this may have on crude pricing.
Latest Chinese PET resin trade data showed a large hike in monthly exports in June to 532k tonnes, up round 13% monthly and 72% on the same period a year earlier.
Producers reported export volumes have continued to maintain high levels in July, with factor stock levels averaging around a healthy 14 days.
Whilst production cuts have helped to stabilise the market, even seeing some margin recovery, as lines restart and new capacity is added, oversupply will continue to pressure spreads.
Softening freight rates may give demand support, but any change is unlikely to be meaningful enough to prompt a turnaround in demand as we head into the offseason.
Additionally, South Korean Trade Commission has decided to impose temporary anti-dumping duties on Chinese PET resin lasting until 29 November 2024, having initiated the investigation back in January.
