ABSTRACT ----------------------------------------------------------------------------------------------------------------------------------------------------------- Following years of high operating rates and margins, the PX industry is set to slide rapidly into an unprecedented level of oversupply. The effects are likely to be felt right through the PET value chain, as most of the new supply is being brought to market by Chinese downstream polyester players. These companies have come to dominate the global markets for PET resin and fibre, despite being severely handicapped by a lack of upstream integration. Their collective requirement for PX imports has risen to well over one million tons per month, and their derivatives margins are frequently negative due to PX price volatility. This in turn leads to operational volatility, with PTA and PET producers running when margins are positive, then cutting back when margins fall. Chinese groups such as Rongsheng, Tongkun, Hengli and Hengyi are now however close to completing several new crude-to-PX complexes of unprecedented size, which will provide them full PET value chain integration, with leading scale and likely leading economics at each stage. They will shift from their current opportunistic operating regime towards an asset utilization strategy, as their upstream integration will provide positive margins at almost all points in the business cycle. They will also need to operate their new refinery/PX complexes at high rates in order to cover the financing obligations on the tens of billions of dollars which each party has invested upstream. The companies which shipped 16 million tons of PX into China in 2018 will be the first to come under pressure, leading to plant closures potentially in all regions. Competitive pressure on producers of PTA, PET and fibre around the world will be redoubled due to the greatly increased competitiveness of the Chinese producers. This will drive closures of derivative capacity around the world, and likely widespread appeals for anti-dumping duties etc on Chinese exporters. The focus on marine litter and circular economy objectives will further intensify market pressures, as increased volumes of recycled PET resin and fibre erode demand for virgin product. The rapid fibre market growth over 2017-2018 absorbed a potential capacity surplus, but growth has already declined significantly in 2019. The US/China trade spat, risk of conflict in the Middle East, and various other global political and economic issues make it seem impossible for demand growth to absorb the new supply, and thus a shakeout of capacity at various stages in the PX to PET value chain now seems inevitable over the next three years. When these same companies over-invested in PTA around five years ago, there were casualties among producers in all other regions, but also among the new Chinese investors themselves. The complexity and scale of the crude-to-PX investments creates great financial strain, and also requires these companies to make a success of the fuels side of their refinery businesses. It is therefore far from certain that all of these projects will succeed, or that all of the companies will survive in their current form. ----------------------------------------------------------------------------------------------------------------------------------------------------------- HOME | 17th LAPET, Polyester & Recycling
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