Uncertainty over feedstock prices is putting a block on upward momentum in the European polyethylene terephthalate market, market sources said.
Prices have been marching upwards recently as producers pushed through higher feedstock prices and tried to increase margins, bolstered by a lack of import competition.
Producers have been fighting to regain margins as they had fallen to unsustainable levels, according to market sources.
Margins tightened as feedstock prices rose while PET prices had been under pressure from low demand and import competition.
The European contract price for paraxylene, the main feedstock for purified terephthalic acid, which is in turn the main feedstock for PET, rose to Eur1,210/mt ($1,585/mt) in November from Eur1,090/mt in June.
PET spot prices started June at Eur1,240-1,250/mt and finished November at Eur1,240-1,245/mt.
Over the same period, contract prices for monoethylene glycol, PET's other key feedstock, climbed from Eur925/mt to Eur1,070/mt.
The feedstock contract increases indicated an approximate Eur119/mt increase in raw material costs for PET over the June to November period.
Producers' hopes of passing the increases through to their customers were foiled by weak demand and competitive imports boosted by an increase in the value of the euro against the dollar.
From the beginning of July to the end of November, the euro increased from $1.2379 to $1.3011.
Although the euro continued climbing after that, reaching a high of $1.3695 at the beginning of February, higher global prices gave European producers some leeway to increase.
ASIA PET RISES
Asian prices for PET were at $1,290/mt FOB Northeast Asia and $1,316/mt FOB Southeast Asia in early June, and climbed to $1,350/mt in NE Asia and 1,370/mt in SE Asia on November 21.
But in early February, when the euro was at its strongest, prices had jumped to $1,585/mt in SE Asia and $1,575/mt in NE Asia, reducing the competitiveness of imports.
In addition, the euro has fallen over recent weeks, reaching $1.2297 on Wednesday from $1.3103 a week earlier.
European producers said the euro's weakness was keeping them competitive.
"The [currency] volatility plays havoc with our business but at least it keeps the imports out," said one producer.
Asian PET sank $40/mt week on week to be assessed at $1,520/mt FOB Northeast Asia and $1,510/mt FOB Southeast Asia Wednesday as sellers continued to reduce offers in an effort to entice buyers back into the market.
But yet further Asian price declines would be necessary to make imports competitive again, sources said.
"We hope drops in Asia might lead to better advantages, but it will probably be eaten up by exchange rates," said a converter.
Having dramatically cut production rates in Q4 2012, most European producers continue to run at around 80%, sources said, helping to avoid excess supply in the market.
TURNAROUNDS
In addition, there have recently been turnarounds at some plants and further turnarounds are expected over the coming weeks.
This year, feedstock prices have thus far continued to increase, reaching Eur1,260/mt in February.
But, because of the aforementioned import reductions and lower regional production rates, PET producers have had greater success in passing through the increases, and in some cases have achieved some margin increase too, sources said.
Most market participants up until recently expected further price increases in feedstocks for March, and therefore expected PET to continue rising.
But recent uncertainty over feedstocks has led to buyers staying away from the market in anticipation of possible price declines.
The European contract price for PX tends to follow the movement of the Asian CP, which until last week most sources still expected to increase.
However, as a result of weakness in downstream PTA leading to lower demand, Asian spot prices underwent large and rapid declines, reversing market expectations.
The ACP was expected to settle last Thursday but, following an initial settlement at $1,670/mt CFR, a $15/mt decrease on February's ACP, no further buyers were willing to follow and the contract has not reached a full settlement.
Negotiations for the ECP have dragged on as a result of the price volatility and uncertainty, and a decrease seems increasingly likely.
However, MEG contracts are still expected to increase as a result of higher upstream ethylene, though negotiations have also been protracted because of weak demand.
As a result of the volatility, spot prices for PET in Europe were assessed lower this week for the first time since last November, as some panic selling was heard.
Spot prices declined Eur10/mt week on week to Eur1,310-1,315/mt FD NWE.
The last time spot prices declined on the week was on November 21, when they fell Eur5/mt to Eur1,230-1,235/mt.
Given the changing climate, PET sources were unable to come to any degree of uniformity on the likely outcome for March prices.
