Affected by the global spread of the COVID-19 epidemic, the plunge in crude oil prices and the global economic recession, the global chemical industry in 2020 has experienced an unprecedented hit, and the entire petrochemical value chain has not been spared. Looking forward to 2021, as production capacity returns to the market, supply will increase, while demand is also gradually rising, but the supply and demand situation in different segments is not the same. Launched the 2021 market segment outlook series, which gathers industry forecasts on aromatics, olefins and the PTA industry chain to satisfy readers.
Platts Energy Consulting recently reported that with China’s massive new production capacity in the first half of 2021, it is expected that the Asian purified terephthalic acid (PTA) market will experience oversupply. This will impact PTA production profitability and prompt Northeast Asian producers to find other distribution channels. Market participants predict that PTA goods in Northeast Asia will begin to be sold to other markets such as India, the Middle East and Europe.
China's production capacity expansion
Market analysts predict that China will have a total of 7.9 million tons/year of new PTA production capacity in the first half of 2021, including Fujian Baihong Group’s 2.5 million tons/year PTA plant in Quanzhou, and Shenghong Petrochemical’s 2.4 million tons/year in Lianyungang, Jiangsu. The annual PTA plant and Yisheng Petrochemical’s 3 million tons/year PTA plant in Ningbo, Zhejiang. This means that China's PTA production capacity in the first half of 2021 will increase by nearly 14% compared to 2020.
However, industry insiders predict that after the new capacity is put into production, the overall operating rate of China's PTA equipment will decline in 2021, because the growth of downstream polyester fiber demand lags behind the expansion of PTA capacity. Since the second half of 2020, PTA stocks in the Chinese market have been hovering at a record level of 3.6 million to 4 million tons, which is much higher than the usual level of 1 million to 1.5 million tons before the outbreak of the new crown pneumonia. This is mainly due to the commissioning of new capacity and weak demand, especially at the beginning of 2020.
According to S&P Global Platts data, from September to early December 2020, the average price difference between PTA and raw material paraxylene in the Asian market is 77 US dollars/ton, and the average price difference between PTA spot and raw material paraxylene in the domestic market is RMB 523/ton, a decrease of 13%~16% from the first half of 2020. Sources said that this level of price difference has reduced the production margins of some Asian PTA producers to negative values, but the price difference between PTA and raw material paraxylene in 2021 may be further narrowed, especially in the Chinese market.
Although market participants have discussed the export potential of China's PTA after large-scale production capacity expansion, due to logistics challenges, higher freight costs compared to other Northeast Asian exporting countries, and lack of new import markets, China's PTA exports are expected to be exported in 2021 There will be no significant growth.
Northeast Asian producers seek other ways
With the increase of domestic PTA production capacity in China, South Korean PTA exporters will continue to target the European and Turkish markets and make full use of the advantages brought by the free trade agreement. From January to October 2020, South Korea exported a total of 1.62 million tons of PTA, of which only 92,272 tons were exported to the Chinese market, a significant decrease year-on-year. According to customs data, South Korea exported 2.08 million tons of PTA in 2019, including 255,906 tons to China.
In addition, manufacturers in other regions of Northeast Asia that used to supply large amounts of PTA to mainland China are now actively exploring other markets such as Vietnam and India. A PTA manufacturer in Northeast Asia said: “Due to the price being squeezed, after the large-scale expansion of China’s domestic PTA capacity, the liquidity of spot PTA exports from overseas manufacturers to the Chinese market will decline.”
India partially depends on imports
According to market participants, in the first half of 2021, the domestic PTA market in India may be tight, leading to increased imports. India is the second largest PTA market in Asia. According to Indian customs data, before the outbreak, India usually imported 50,000 to 60,000 tons of PTA per month.
Affected by planned and unplanned shutdowns of domestic PTA production facilities, the Indian PTA market has been facing a shortage of domestic supply since mid-September 2020. At the same time, some PTA producers in India began to enter the downstream business in August, increasing the supply of PTA to the newly acquired polyester production facilities and reducing part of the market supply. The current tight supply in India's domestic PTA market may continue until 2021, because there is no new domestic PTA production capacity plan in 2021.
Therefore, traders expect that India’s import demand for PTA will be greater in the first half of 2021, but uncertainties such as stricter import controls, tight container market supply, and epidemics still exist. The Bureau of Standards of India is expected to implement stricter quality control on PTA imports in 2021. Due to the impact of the epidemic, the timetable for implementing stricter quality control on PTA imports in December 2020 has been postponed. This may cause temporary supply problems.
According to sources, freight costs are expected to remain high until February next year or even longer before returning to normal levels. Compared with the normal level, the current freight cost has increased nearly 3 to 4 times. The skyrocketing freight rate has pushed the price difference between PTA CFR India and CFR China to US$117/ton, which is the highest since Platts began evaluating the price difference between PTA CFR India and CFR China in November 2008. Data from Platts Energy Information from 2018 to early 2020 show that this spread is usually less than $30/ton.
