Asian PET bottle chip producers are battling rising feedstock costs in a low demand climate, sources from companies told Platts Wednesday.
"I've been in this business for seven years, and I've never seen it so bad before," said a source from a producer in Northeast Asia.
PET bottle chips typically fare worse during the low demand season during the colder months of the year as consumers turn away from bottled drinks, preferring warmer beverages instead.
Most producers anticipate this drop and are able to manage it. However, unexpectedly firm recent purified terephthalic acid and monoethylene glycol prices recently have shaken these plans.
FEEDSTOCK COSTS EXACERBATE WEAK SEASON
Asian MEG hit a 31-month high last week at $1,334/mt, and subsequently surpassed that level on Thursday, to be assessed at $1,336/mt on a CFR China L/C 90 days basis. The firmness came on supply concerns due to shortages in Taiwan.
Meanwhile, CFR China L/C 90 days PTA prices were assessed at $1,363/mt on Thursday, up $21/mt from on Wednesday. The gains in PTA prices were led by an increase in paraxylene prices, market participants said.
Based on Thursday's prices, the breakeven price of producing PET is $1,776.42/mt.
Producers in South Korea are mostly offering September PET bottle chips below cost, at $1,760/mt FOB Korea. KP Chemical is offering cargoes at $1,730/mt.
A source at KP Chemical, which has two plants in Ulsan with a combined production capacity of 440,000 mt/year, said: "Customers cannot even accept $1,700/mt FOB Korea. It is meaningless to offer $1,750-1,760/mt."
Meanwhile, producers in China were heard offering at $1,760/mt FOB China.
PRODUCERS START CUTTING RATES
A source at a manufacturing facility in South Korea says lower production rates are on the horizon, especially with his storage area almost 80% full.
Already, major Chinese PET bottle-chip producer Jiangsu Sanfangxiang, which reduced operating rates at its PET continuous polymerization lines in Jiangyin to 90% of capacity two weeks ago, cut rates further last week to 75% due to slim margins.
Sanfangxiang has a total production capacity of 1.2 million mt/year. It operates five lines with a capacity of 200,000 mt/year each and two lines with a capacity of 100,000 mt/year each in Jiangyin, eastern Jiangsu province.
A source told Platts earlier that there is no clear target date to raise operating rates again, noting that any increment will depend on the market situation, including feedstock costs.
BUCKING THE TREND
However, one producer that will not be reducing operating rates is Reliance.
"We are always at 100%," said a company source.
The company, which has a 300,000 mt/year PET bottle chip plant in Hazira, has sold out its September cargoes on good demand, a company source said Wednesday.
The company will start offering October cargoes at the end of September.
The source attributed Reliance's success to its relationships with its customers, especially those in South America, the Middle East, Africa and Europe.
"They are regular customers. They understand when we give [higher] prices because raw material costs are higher," said the source.
While the source declined to give Reliance's likely offer price for October cargoes next week, citing uncertain market conditions, he did say that if he were to offer September cargoes this week, the price would be at least $1,750-1,760/mt FOB India.
