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Coronavirus and the collapse in polyester – will paraxylene and PTA markets recover?

| Business function | Wood Mackenzie | Edinburgh | United Kingdom

Global polyester production is expected to decline by more than half a million tonnes this year. For polyester’s key raw materials, paraxylene (PX) and PTA, the knock-on effects will hit global demand in the coming years. 

Paraxylene demand is expected to fall by approximately 500 kt year-on year and demand for PTA will see a 450 kt reduction year-on-year, according to new analysis from Wood Mackenzie.

Wood Mackenzie’s pre-coronavirus supply-demand update had forecast demand for PX to grow by 2.1% in 2020, however this is now expected to shrink by 1.1% this year. This translates into a 1.6 Mt reduction.

For PTA, the decline is slightly steeper, taking expected growth from 3.8% to -0.6% in 2020, or a 3.2 Mt reduction in demand compared to Wood Mackenzie’s previous view.

“The PX and PTA markets were already grappling with reduced operations and margin compression due to global overcapacity and this coronavirus-driven collapse in demand casts further gloom on these markets.

“Exactly how much capacity comes online will be one determining factor in how sharply markets will need to adjust.

“PX and PTA plants that are currently under construction are still expected to be built, although mechanical completion does not necessarily mean that all the units will operate. Those projects that are still in the early stages of development and have not started construction will likely be delayed,” said Joyce Grigorey, Wood Mackenzie Principal Analyst.

Wood Mackenzie estimates that a further 12.4 Mt of net PX capacity is still to come online between 2020-2023. This will be met by an additional 17.2 Mt of downstream PTA capacity over the same timeframe.

With such large additions still to come, operating rates for both commodities will be forced down to historic lows. This is likely to accelerate the rationalisation of some smaller and older non-integrated PTA units. “However, those players that do manage to weather the storm will see demand recover again next year, with our forecast calling for demand to rebound by around 4.5% on average over the next three years,” added Grigorey.

Most PTA additions expected to come online between 2020 and 2023 will be built in China. This new capacity construction wave is different from previous ones, however, as a large chunk of new capacity will be built by current market players. This will further consolidate China’s PTA supply and put these producers in a better position to manage the supply-demand balance.

PX prices in absolute terms are expected to remain more stable over the next couple of months but feedstock costs are expected to continue to rise. The outlook for PX economics is expected to remain poor due to the continued oversupply and slow recovery in demand.

However, not all polyester segments have been performing poorly.

Demand for polyester staple fibre, used in PPE equipment and hygiene wipes, has continued to outperform its fibre counterparts. Panic-buying of items such as bottled water and sanitation products has been good news for PET markets in the US and Europe.

Nevertheless, since the PET resin market represents only 30% of total polyester polymer production, the overall polyester market has been heavily impacted by the global collapse in fibres demand.

The fibres sector is expected to take several years to recover and will be further challenged by macroeconomic factors, such as the rise in unemployment and ballooning government debt.

“There is further downside risk should a second outbreak occur and as governments oscillate between the loosening and tightening of restrictions in order to maintain control over the virus spread.  However, we are starting to see glimmers of hope as the world begins to emerge from the pandemic.

“As the world finds a new normal, further implications on the polyester market will need to be considered. Rethinking the view around the benefits of plastics has the potential to lead to some changes in government policies and regulations, specifically related to sustainability objectives,” said Grigorey.

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