Markets are seeing consumers demand decreases and discounts in the face of seasonal demand and weakening supports in MEG. It seems the downward spiral in MEG combined with a rollover-to-nominal increase in January PX contract has buyers on the warpath. Producers seem to be submitting depending on whether or not they fully moved prices in December. East Coast spot prices are finding resistance above 70 cpp, which suggests that prices have been reduced. With MEG in the high 60’s and PTA at 49 cpp, including discounts, cash costs are 69 cpp with a conversion of 11 cpp. This leaves about 5 cpp negotiating room depending on how efficient production plants run. Under these conditions, it would not be surprising to see producers reduce production rates as tipping energy support and refinery turnaround season, weakening MEG and lousy demand would favor such a move. Bottling season is approaching, so such a move would be short lived, as producer must build inventories for the season. One thing that could accelerate this move would be continuing declines in Asian FOB prices.
Markets saw slight decreases on raw material related contracts carried over from December. Weakness in European markets continues as seasonal markets continue to depress demand. High Asian prices have helped to keep prices relatively flat. This may change as Asian prices are now starting to discount.
Similar to fibers, Asian PET resin markets can be described as mixed over the past two weeks. Feedstock costs continue to drop, with PTA flat at $860, while MEG declined further into the low $1200’s. The improved margins have eased pressure on resin producers, but demand remains extremely poor, prompting most players to maintain a negative outlook for Q1. Some sellers, in an attempt to stimulate buyer interest, have offered discounts of up to 3-4% depending on tonnage. This indicates a serious buyer could find material around $1300-$1310 FOB Korea for February, although listed offers are higher at $1320-$1330 FOB.
Despite the lower prices, buyers have shown little interest as they are still having trouble obtaining credit in China. Therefore, export demand will likely remain weak until after Lunar holidays. Even in the domestic China market, trading has been thin with several bottlers already declaring they will go on holiday early due to lack of cash. This has prompted at least one Shanghai PET producer to cut rates again by another 10-15%. Other producers have followed the regional market and cut domestic prices to stimulate demand. Offers are down Rmb 200 to Rmb 11,600-11,700 or 11,500 on a cash basis. The outlook for Q2 is much improved over Q1, as the 2008 Beijing Olympics is expected to boost domestic demand for both PET resin and fibers.