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The last two years have provided unprecedented growth for the
global paraxylene industry, a raw material used in the polyester
sector. A combination of global GDP expansion and the Chinese
government's decision to ban the imports of plastic waste including
recycled PET resin bottles have led to incremental paraxylene
consumption of more than 3 million metric tons in 2018, performance
not previously achieved in the polyester sector. Combined with
limited investments in new paraxylene capacity, this has led to a
major improvement in paraxylene profitability until very
recently.
Fibers Demand Growth Accelerates There is a strong correlation between global GDP growth
and total fibers demand. Offering lower costs and application
versatility than competing natural and man-made alternatives,
polyester fibers continue to grow faster than global GDP, taking
share from other fibers such as cotton. Between 2002 and 2012,
excluding the recession of 2009, global GDP expanded at an average
rate of 3.4%. However, since 2012, global GDP expansion has
remained below 3%, ranging between 2.4-2.8%, and total fiber demand
expansion has been slower. In 2017, the picture started to change
as the mature economies performed strongly and emerging economies
came out of their recessions, accelerating global GDP growth to
3.1%. Total fibers demand jumped by 6.3% in that year. 2018
exhibited even stronger global GDP growth of 3.2% and fibers demand
grew by 4.9%. Between 2013 and 2018, polyester's share of total
global fibers demand also increased from 46 to 48%, representing
consumption of 52.3 million mt in 2018.
Polyester fibers demand growth was also particularly enhanced in
2017 and 2018 as a result of the Chinese government's decision,
under the National Sword Policy, to ban the import of recycled
plastics including recycled PET resin bottles. Previously, China
had been importing around 250 kt per month of recycled PET resin
bottles but this started to fall sharply in 2017 in anticipation of
the ban, which became effective on 1st January 2018.
Recycled PET resin bottles had been used in the production of
polyester staple fibers in China but, as a result of the import
ban, more virgin polyester staple fibers needed to be made instead.
There has been a shift of some recycled PET resin bottles to South
East Asian countries such as Vietnam, Indonesia and Thailand but
this has been more limited compared to China's consumption and has
not always found its way back into polyester applications.
Consequently, demand for terephthalic acid (PTA) has been raised by
4 million in 2018 and paraxylene consumption by 3 million mt. After
several years of anaemic growth for polyester of around 3-4% annual
growth, the polyester sector is estimated to have grown at more
than 6% in 2017 and 2018.
Limited new paraxylene capacity additions in 2018 New paraxylene plants in Saudi Arabia and Vietnam had been
expected online during late 2017, but these both experienced start
up difficulties and were delayed until 2018. Petro Rabigh's 1.35
million mt facility in Rabigh, Saudi Arabia came online in the
summer but did not operate smoothly until October. Additionally,
Nghi Son's 700,000 mt paraxylene unit in Vietnam was delayed until
late in Q3 of 2018, operating at below optimal rates for most of
that quarter. Initial expectations of early start-ups of one or
more of the new Chinese mega-refinery petrochemical complexes were
disappointed and these aromatics units are still not operational.
However, Fujian Fuhaichuang, the new owner of Tenglong (Dragon)
Aromatics did bring one 800,000 mt paraxylene line back at the very
end of 2018 and the second line was restarted in March of 2019.
Additional incremental paraxylene capacity achieved during 2018 was
the Q3 restart of TPPI's unit in Indonesia, which had been
mothballed since 2014. Incremental output also came from Reliance's
2.2 million mt plants which were commissioned in Jamnagar in 2017.
With strong polyester fibers growth, supported by additional
production of polyester staple fibers and higher PET resin demand
for bottles and packaging, combined with limited new paraxylene
capacity of around 2.4 million mt, the global average operating
rate of nameplate capacity was lifted to 88% last year.
Positive Margins for all Producers Although paraxylene production margins have improved since
the collapse seen in 2015, when global gasoline demand surged and
mixed xylenes and toluene blend values escalated beyond affordable
spot prices, only paraxylene producers in Asia with integrated
mixed xylenes from reformers have enjoyed positive margins over the
last few years. Asian companies buying mixed xylenes from the spot
market or using extracted toluene for trans-alkylation units have
not been profitable. With a similar trend in the US, this may have
contributed to the decision by Chevron Phillips in Port Arthur,
Texas to close their 450,000 mt capacity paraxylene plant early in
2019. However, paraxylene market dynamics changed quickly in Q3 of
2018 as strong polyester fibers and PET resin growth which prompted
record consumption of PTA and paraxylene, combined with limited
incremental capacity, led to a prompt shortage of product. Spot
paraxylene prices surged to $1,400 per mt on 3rd
September, driving the spot paraxylene naphtha spread from $350 per
mt to a peak of $700 per mt and making paraxylene margins positive
for all producers. This remained the situation through March of
this year providing a positive change in fortunes for paraxylene
suppliers, prompting the restart of Indonesia's TPPI paraxylene
unit. The rapid increase in paraxylene prices in September did have
a negative impact on the polyester industry. Many polyester fibers
and PET resin producers could not pass through the increased costs
as rapidly as paraxylene prices were spiking and margins turned
negative, forcing producers to turn down production rates,
impacting PTA and paraxylene consumption in September and October.
Despite this demand destruction, paraxylene margins remained firm
and polyester margins eventually recovered.
Uncertain growth outlook 2019 Significant uncertainty exists regarding the paraxylene
market outlook for 2019. The downstream polyester industry has lost
the confidence it enjoyed for most of 2018 due to the tension
created by the US China trade dispute, which has spooked financial
markets and affected the outlook for global economic growth in
2019. Additionally, should the trade dispute between the US and
China not be resolved, 25% tariffs may even be added to polyester
clothing from China destined for the US market. Given the scale of
China's textile sector relative to competing countries, even a
tariff increase would probably not lead to a major drop in
polyester exports to the US, but growth would be affected somewhat
and the sector would not enjoy the strength seen in both 2017 and
2018. According to IHS Markit, global GDP growth is forecast to
weaken to 2.8% in 2019. The uncertainty in the crude oil sector
could also affect polyester demand growth next year. Continuously
weakening energy values lead to a de-escalation of polyester
product pricing and a reduction in inventory valuation each month,
providing a disincentive to build polyester stock, which eventually
slows demand. A more certain outlook on crude oil pricing would
return confidence to the polyester sector and firm up consumption.
We should also not forget the effect of recycled PET resin bottle
waste. The material previously consumed by China will find its way
back into the polyester chain, either as polyester flake used by SE
Asia countries or imported into China in place of PET bottle bales.
As a result, IHS Markit anticipates polyester sector global growth
of 4.8% in 2019, a modest yet noticeable reduction from 2018's
level.
Large Chinese paraxylene capacity changes the global
operating rate Another major change for the paraxylene industry in 2019
is the expected amount of new paraxylene capacity coming online.
The incremental capacity from Petro Rabigh and Nghi Son's units
amounts to 1.2 million mt. We have already discussed the restart of
one of Tenglong Aromatics' paraxylene 800,000 mt lines under Fujian
Fuhaichuang at the end of 2018 and an additional line of the same
capacity came online in Q1 2019y. This should also be the year when
two of the large Chinese mega-refinery aromatics complexes are
commissioned, at Hengli Petrochemical and Zhejiang Petrochemical.
Around 3 million mt of back integration capacity could be available
in 2019 from these two sites alone. Significant excess paraxylene
capacity will be added relative to incremental market demand
growth, leading to a decline in the global paraxylene operating
rate to a forecast 83 %, with a further step change down in 2020.
As a consequence, paraxylene margins turned down again in 2019, and
are forecast to fall to a low point in 2020 as the global industry
readjusts to China's reduced import demand and high cost
competitors are forced to shut their plants. NE Asia non-integrated
units are at risk given the higher energy costs of conversion in
this area and increased exports out of the low-cost Middle East
region. Although also burdened by higher costs, European producers
will benefit from stronger regional demand caused by significantly
enhanced local PTA production. Similarly, with the closure of the
Chevron Phillips paraxylene unit in the US Gulf and despite one PTA
line being converted to isophthalic acid production, the North
America market will remain relatively balanced on paraxylene.
Upside to 2019 Paraxylene market With many challenges facing the polyester industry in 2019
but much still to be determined and influenced by trade
relationships, economic growth and OPEC policy, the outlook for the
paraxylene industry could be much better than portrayed. The
start-ups of the unusually configured private Chinese refinery
paraxylene complexes face many challenges and these plants could be
delayed, similar to those experienced by other producers in 2018.
We can create a scenario where the new Chinese capacity is delayed
and only 50% of the anticipated new paraxylene capacity in China
comes online in 2019, with a similar delay of incremental capacity
in 2020. Additionally, there could be a swift resolution of the US
China trade dispute and a normalisation of relations, leading to
the elimination of tariffs and an improvement in confidence, global
economic growth and polyester growth. If we assume that polyester
demand growth continues at the same level experience in 2018, this
would boost incremental paraxylene demand growth by more than 2.5
million mt in 2019. The global paraxylene plant operating rate
would remain around 86% in 2019 and 82% in 2020. With such an
uncertain market outlook, producers and consumers will need to
expect surprises and be sensitive to alternative scenarios over the
next couple of years.
IHS Markit closely monitors and analyzes the global paraxylene
market giving you the visibility needed to make confident strategic
decisions. The
Global Polyester Fibers & Feedstocks Market Advisory
Service provides accurate current near-term market data and
analysis while our
World Analysis improves your planning and forecasting by
understanding the long-term outlook in shifting markets with
supply, demand, global capacity, price, cost and margin
analysis.
Posted 07 May 2019 by Duncan Clark, Vice President Aromatics & Fibers, IHS Markit