London — The European polyethylene terephthalate market is set to face a supply drought in the foreseeable future amid lingering scarcity of feedstock purified terephthalic acid in the region.
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This developed after a force majeure was declared April 4 by BP on PTA supplies from its PTA plant in Geel, Belgium, which is now taking a toll on the downstream PET production chain.
"Anyone who is not integrated is going to struggle," a PET producer said. "BP's gap [is] too large to fill."
The supply tightness unfolded ahead of the peak summer demand season for bottled beverages in Europe.
"[It] coincides with a strong period of demand, could not have happened at a worse time," a converter said.
BP'S PTA WORRIES
With a force majeure remaining since April 4, BP had initially put customers at allocations of 70%. However, in the second half of May, the allocations had dropped to a mere 20% as the demand-supply deficit intensified, numerous PET producers said this week, who source PTA from BP.
A second source mentioned that the plant outage had been caused by an explosion at the facility's powerhouse, which led to power supply disruptions to the PTA and paraxylene plants.
A BP spokesperson confirmed Thursday that force majeure remained in place, but declined to comment further on operational matters.
BP is the largest PTA producer in Europe, with a nameplate capacity of over 1.3 million mt/year at the Geel facility.
This represented nearly a third of the total PTA production capacity in the EU. However, BP accounted for over two-thirds of the PTA production, which was not for captive use in integrated downstream PET units.
With no end in sight, market participants now expect the European PET output to be reduced in the coming weeks.
PET PRODUCER DYNAMICS
With only Indorama in Europe having integrated PTA production plants, the PTA supply crisis is expected to be felt widely across the market.
Some European PET producers have already been experiencing difficulties. JBF has declared force majeure on PET supplies, while others have reduced their output in response to the BP incident. June output is expected to be affected across the board, another PET producer said.
"[It is] a really big struggle with [sourcing] PTA, [I'm] not sure if we will be able to run [our PET plants] properly in July," a third PET producer said.
Other PET producers were more optimistic, opting for a wait-and-see stance before deciding whether to lower their PET production rates.
"For the time being, we are surviving," a fourth PET producer said.
Some of these producers were also sourcing PTA via imports from South Korea and Mexico, which acted as a supply hedge in this situation.
However, PTA supplies also appeared to be tightening on the import horizon amid an outage at a South Korean plant.
South Korea's Hanwha General Chemical declared force majeure May 21. This could lead to a reduction in loadings from the East around end-of-May dates and could further limit loadings in June.
With lead time of nearly three months, European PET producers dependent on PTA imports may be faced with feedstock scarcity in the second half of August. This would likely extend the tightness in the European PET market in the future, beyond the point of resumption of full operations at BP's Geel facility.
"I don't think the situation will change by August, unless there are big changes in Asia," the third PET producer added.
INDORAMA: THE ULTIMATE WINNER?
While the majority of the PET market comes to terms with BP's disruption, Singapore-headquartered Indorama appears to be the only company to have a minimal impact on production from the event.
Some market sources suggested Indorama also covered a some of its PTA requirements by procurement from BP.
However, the bulk of Indorama's feedstock PTA requirement is met by captive production capacity.
Indorama is also likely to restart its PTA plant in Sines, Portugal, around end-May/early-June dates, market sources told S&P Global Platts earlier in May.
Indorama began the acquisition of the former Artlant plant in November, 2017. The PTA plant has been idled since November 2015, having previously restarted for just a month in October that year after remaining shut for around 16 months.
An aromatics trader said Indorama would need 50 clips of feedstock PX annually for the plant's operations, with each clip being of 10,000 mt.
According to shipping sources, a 5,000 mt PX parcel was fixed in in the second half of May, for an Aliaga, Turkey, loading and discharge at Sines. With Indorama's asset being the only related facility in Sines, this suggested a likely run-up to a timely restart of the PTA plant.
With the prospect of increased internal PTA availability in a market environment of drought, it appears likely that Indorama will be the exception among European PET producers in its ability to meet contractual obligations with little difficulty.
However, it remains to be seen whether Indorama's Artlant plant restarts on schedule and hits production targets. This in turn would also decide whether Indorama is able to turn the PTA supply crisis into an opportunity for reinforcing its market position in Europe.