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Processors Stand To Profit From Suppliers’ Price Wars

Will demand for polyethylene terephthalate (PET) in China and the former CIS countries grow fast enough to consume the massive resin capacity set to come onstream in Asia-Pacific? The region already is the largest net exporter of PET. Based on comments from market experts at the Polyester 2002 conference in Zürich in December, it remains to be seen.

Processors can presume that PET prices likely will remain at or even drop below current levels for some time. Prices in the U.S. rose for most of 2002, by about 7%, but tailed off at year’s end, likely because early cold weather slowed beverage and, thus, packaging sales. Per-tonne PET prices at the end of 2002 were about €1025 in Europe, €1125 in the U.S., and €800 in the Far East. All prices are below those in late 2000, by about €200/tonne.

Bottle-grade PET from Korea was priced even lower, at about €750/tonne, with most sold in Eastern Europe. The region has proven to be a big PET market, as local processors are making preforms for export to the EU countries, undercutting processors there.

Despite levies on PET imported into the EU, resin suppliers in Western Europe — and North America — are battling a price war created by Asian imports. This has crushed margins and forced delays or cancellations of capacity projects. Yet, those same suppliers are competing to license their polymerization technologies to Asian producers.

Using figures from independent sources, Anil Choudhry, CEO of the PET division of PT Indorama Synthetics, Jakarta, Indonesia, predicts that total PET demand in Asia-Pacific will grow from 1.925 million tonnes last year to 2.465 million tonnes by 2004. It’s a projection he describes as “very conservative.” In the same period, capacity in Asia-Pacific will skyrocket from 4.351 million tonnes to 5.874 million tonnes.

Korean and Taiwanese suppliers had accounted for the largest chunk of PET supply in Asia-Pacific, but they were surpassed by the multitude of small Chinese producers last year.

By 2004, Choudhry says Chinese suppliers will account for 31% of all Asia-Pacific supply, in contrast to 16% in 2001. “Even if Asia-Pacific demand growth is 25%/yr, there will still be material for export,” he says.

Already, the capa-city glut has led to plant shutdowns. A DuPont facility was closed last November, and one month later, Wellman postponed its previously announced, 2004 modification of a polyester fiber line to a PET resin/fiber swing line at its Pearl River, MI, facility.

While China’s suppliers have been on the offensive, some wonder whether they will withstand stronger competition in their home market as a result of the nation’s entry into the World Trade Organization.

Hamid Reza Ajami, marketing/sales director for polyester products at the National Petrochemical Company (NPC), Tehran, Iran, says the firm is targeting China, then India and Pakistan as markets for its materials. NPC was to start production at a 412,000-tonne/yr polyester plant this June, and at a 396,000-tonne/yr plant in 2005, but Ajami says both projects have been delayed, the former by a few months.

Luo Wei, general manager of Kaiping Polyester, which has 600,000 tonnes/yr of capacity and is the second-largest polyester supplier in China, says producers have seen domestic prices drop by 14%, and profits by 19%, since late 2000. One result of joining the WTO is that import duties on PET will gradually drop from 14% to 6%, a level which Luo reckons will put tremendous pressure on local resin suppliers.

He expects China to evolve from a net importer to a net exporter, largely because pricing in China is so cut-rate, domestic suppliers will look elsewhere for sales. He says Europe, the Middle East, and South Africa are target markets.

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