Insight Focus
- PTA and MEG futures rebounded on improved demand prospects and lower inventories.
- PET resin export orders fall sharply in August as near-term demand slows.
- PET export spreads narrow further with prices expected to continue to weaken.
PTA Futures and Forward Curve
- The PTA Futures market closed higher last week, pushed higher by rising costs and steadily improving downstream fundamentals.
- Textile mills are now operating at typical seasonal levels; the inventory burden that has dampened fresh polyester demand is now expected to slowly reduce through September and October.
- If polyester demand improves and PTA production remains constrained by tight PX availability, inventories may lower further, supporting PTA margins.
- The PTA forward curve has steepened in backwardation over the last week with the Jan’23 contract at over RMB 800/tonne discount to the current month.
MEG Futures and Forward Curve
- MEG Futures rebounded strongly last week, buoyed by falling inventories and rising polyester operating rates.
- Port inventories that have hamstrung the MEG market through the summer, have fallen sharply since mid-August and may further decrease as typhoon Hinnamnor delays new arrivals.
- Expectations are now for a demand recovery through September and October as polyester sector heads into peak season. However, this will be dependant on a sustained decrease in inventory levels.
- The MEG forward curve remains in contango reflecting expectations of a pick-up in downstream demand through H2’22. Jan’23 contract prices are now at around 90 RMB/mt premium to current month prices.
PET Resin Export – Raw Material Spread and Forward Curve
- Chinese PET resin export prices remained flat through last week averaging USD 1060/tonne by Friday.
- However, continued recovery in feedstock future prices has narrowed the raw material spread further.
- The weekly average PET resin–raw material physical differential decreased USD 40 from the previous week to USD 71/tonne. By Friday, the daily spread had fallen further to just USD 53/tonne.
- The PET resin raw material forward curve remains backwardated through Q3, with more bearish short-term prospects before beginning to flatten through Q4’22. The Jan’23 contract shows a USD 107/tonne discount over the current month.
Concluding Thoughts
- New bottle-grade PET export orders fell sharply in August with the physical differential to raw material futures at its lowest point since Oct’21.
- Demand has been slowed as key Northern-hemisphere markets move into the off-season, and most buyers find themselves with ample coverage for H2’22.
- The strong US Dollar has also eroded the competitiveness of USD denominated PET exports into many of these markets, erasing any edge over domestic production in local currency.
- However, with freight rates continuing to fall and the Chinese PET export forward curve looking relatively flat through H1’23, pre-buying and forward interest is expected to build, albeit later than last year.
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…
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European PET Market Stumbles as Producers Left Blind on Costs
