Insight Focus
- Stronger crude values supported higher PTA futures versus the pre-holiday close.
- PTA and MEG faces weakening downstream polyester demand on reduced production.
- PET resin export demand remains slow, optimism remains for 2023 growth.
PTA Futures and Forward Curve
- Although moving lower through the week, PTA Futures finished higher than the pre-holiday market close.
- PTA supply tightness has eased slightly with higher PTA plant operating rates. However, continues to be constrained by tight PX supply.
- PTA demand has weakened following China’s National Golden Week holiday as polyester plants reduced production, with only limited restocking.
- Overall, weakening demand and greater PTA liquidity is expected to keep pressure on PTA-PX spreads.
- The Jan’23 contract closed last week at a RMB 400/tonne discount to the current month.
MEG Futures and Forward Curve
- MEG port inventories increased bucking the trend in recent weeks as downstream polyester demand continues to slow.
- As expected, polyester operating rates further reduced following the National holiday, and with supply slowly recovering the market looks set to lengthen adding pressure on MEG prices.
- Several new Chinese MEG plants are also due to start-up in the coming months.
- The MEG forward curve remains in contango, although flatter in recent weeks, with the Jan’23 contract now on par with the current month.
PET Resin Export – Raw Material Spread and Forward Curve
- Chinese PET resin export prices weakened on last week, averaging USD 980/tonne by Friday, down around USD 30/tonne on the pre-holiday market close, and USD 90/tonne for the month.
- The weekly average PET resin–raw material physical differential also declined by USD 43/tonne on softer demand, to USD 135/tonne. By Friday, the daily spread was around USD 142/tonne.
- The raw material forward curve remains in backwardation with the Jan’23 contract discount at USD 47/tonne.
Concluding Thoughts
- New sales and order intake at major PET exporters remains soft, with producers keen to hear new bids and discounting to fill orders.
- Price levels for Dec’22 were heard at a USD 40-50/tonne discount to the current level.
- The addition of new and restarted capacity coming onto the market in Q4’22 is expected to add weight to this downward pressure.
- European buyers have indicated a willingness to import greater volumes into the region in Q1’23 but this has yet to translate into any noticeable change on the Asian sales side.
- Latest financial results from PepsiCo, showed a continued strong beverage volume growth within Latin America and the Africa, Middle East, South Asia regions. All key target markets for Chinese producers.
- Even if European Q1 demand is weaker than anticipated, many other target regions are still in COVID recovery mode and should continue to provide a good foundation for Chinese PET export growth in 2023.
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.