Price stability and an equilibrium between supply and demand are key to restoring confidence in the Chinese purified terephthalic acid and polyester industry, said market participants gathered in Hangzhou, eastern Zhejiang province Wednesday for a meeting.
Both PTA and polyester makers have been under severe cost pressure since the start of the fourth quarter due to high feedstock prices and low demand.
PTA makers such as Yisheng Petrochemicals, Shaoxing Yuandong and Xianglu Petrochemicals said they had already reduced operation rates -- from more than 100% previously -- to around 80% in November. And more cuts could be expected in December if production margins were to erode further.
The fiber intermediate producers said they were being squeezed by high paraxylene feedstock prices and low demand for PTA as polyester makers cut rates. "Cutting run rates is a way for us to reduce our losses," said a source from Xianglu Petrochemicals, which has a 1.5 million mt/year PTA plant in Xiamen, Fujian province.
With the November PX Asia Contract Price settling at $1,500/mt CFR, this means that PTA makers need to break even at $1,140/mt but the average PTA spot price between November 1-23 is only $1,078.38/mt CFR China, Platts data showed.
Polyester makers have also cut their production rates since October. They applauded the PTA makers' move to reduce output and said it could be a way to force PX prices lower. PX is the only commodity in the polyester chain which is currently profitable. The average PX-naphtha spread from November 1-23 is $546.91/mt -- more than double the $230/mt needed to break even.
"PX prices should be rectified to a level which is acceptable to the polyester chain," said a source from polyester producer Jiangsu Shenghong.
"PTA makers cutting their output will put downward pressure on PX," he added.
Poor export demand from the West was cited the main factor for polyester makers to cut rates.
"The polyester inventory level is around 20 days. Foreign buyers have no confidence, but domestic demand remains strong," said a source from Hengyi Group, one of China's largest polyester yarn producer.
He added that both PTA and polyester makers needed to reduce their operating rates in tandem to balance the market. "When the market is balanced, confidence will return and prices can stabilize," he said.
