Asian PTA Faces Supply Glut In China In 2021 Hitting Margins

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  • New Chinese startups to weigh on Asian PTA
  • India expects to import more PTA due to domestic tightness
  • Uncertainties remain on freight cost and Covid-19

The purified terephthalic acid market in Asia is expected to be flooded with supply as new capacities come on stream in China in the first half of 2021, hitting PTA margins and pushing Northeast Asian producers to seek other outlets. Market sources expect Northeast Asian barrels to start finding their way to other markets such as India, the Middle East and Europe.

PTA mega expansion in China
A total of 7.9 million mt/year of new PTA capacity is expected to be brought online in China in H1 2021, including Fujian Baihong Group’s 2.5 million mt/year plant at Quanzhou, Shenghong Petrochemical’s 2.4 million mt/year plant at Lianyuangang, and Yisheng Petrochemical’s 3 million mt/year plant at Ningbo, according to sources. This represents an almost 14% jump in Chinese PTA capacity from the end of 2020.

However, trade participants expect the overall Chinese PTA operation rate to be lower after the new startups come online in 2021, as the downstream polyester growth falls behind new PTA expansion. Total Chinese PTA inventories have been hovering around a record high of 3.6 million-4 million mt since H2 2020, which is way above the typical stock level of 1 million-1.5 million mt before Covid-19 due to new capacity and weak demand especially in early 2020 when the pandemic was at its worst in China, according to sources.

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The PTA/feedstock paraxylene spread averaged to $77/mt for dollar-denominated cargoes and Yuan 523/mt for Chinese domestic prompt PTA in September to early-December 2020, down 13%-16% from the first half of 2020, S&P Global Platts data showed. This has already driven the profit margins for some Asian PTA producers to negative territory, yet the spread is likely to be squeezed further in 2021, especially within China, sources said.

While market players have discussed China’s PTA export potential after the mega expansions, there is no expectation of a significant increase on China’s PTA exports in 2021 due to logistics challenges, higher freight costs compared with other Northeast Asian exporters, and a dearth of new import markets.

On the demand side, the Chinese market expects demand from the downstream polyester chain to continue growing on the back of economic recovery in Asia. The World Bank predicts China’s GDP growth at 7.9% in 2021, based on the East Asia and Pacific Economic Update issued in October 2020.

With intensive PTA expansion in China, South Korean PTA exporters will continue to target European and Turkish markets, tapping advantages derived from free trade agreements. South Korea has exported a total of 1.62 million mt PTA in January to October 2020, with barely 92,272 mt to China. This is slightly lower than the full-year exports of 2.08 million mt in 2019, including 255,906 mt to China, according to customs data.

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Taiwanese producers, who used to export large quantities of PTA to China are actively exploring other markets like Vietnam and India. Vietnam has surpassed China to be the largest PTA export market for Taiwan in 2020. Taiwan’s PTA exports totaled to 554,017 mt between January to October 2020, including 314,866 mt to Vietnam and 208,970 mt to China, based on customs data. In 2019, PTA exports to China was at 516,677 mt.

“No single overseas seller is interested in selling to China due to squeezed prices,” a Northeast Asian PTA producer said, adding the physical spot PTA trades to China will become less liquid after the mega-expansion.

India sees tight domestic supply, more imports
India’s PTA market is likely to be tight throughout H1 2021 domestically, leading to increased imports, said market sources. India is second largest PTA market in Asia, typically importing 50,000-60,000 mt per month before the pandemic, according to Indian customs data

The Indian PTA market has been facing domestic supply shortage since mid-September 2020 amid planned and unplanned shutdowns. Meanwhile, some PTA producers integrated their downstream August onwards and increased PTA supply to the newly acquired polyester units, cutting some supply to the market. The current supply tightness in Indian domestic PTA market may continue in 2021, when there is no new PTA capacity expected to be commissioned locally.

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Hence, trade participants expect greater PTA import demand from India in H1 2021, though uncertainties persist from potentially stricter import control, container availability and Covid-19 pandemic. The Bureau of Indian Standards is expected to introduce stricter quality controls in 2021 – delayed from the initial timeline of December 2020 – on PTA imports, which may create temporary supply issues.

Freight cost, which is already spiraling to almost 3-4 times higher than the typical level, is expected to remain high until February or even longer before returning to normal level eventually, sources said. The soaring freight cost has pushed the PTA CFR India/CFR China spread to $117/mt on December 8.

In downstream, the textiles sector is gradually recovering from the Covid-19 pandemic impact but yet to bounce back to the pre-pandemic level. With news of possible vaccine launch and onset of wedding season in India from December to March, the textiles sector may potentially pick up further in the first half of 2021.

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