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Europe PX spot liquidity drastically cut as PTA producers suffer

September 29, 2008 - It has been a tough year for participants in the Northwest European paraxylene market as producers were faced with pressures from two sides - soaring energy costs in the second and third quarters, and the difficult conditions for downstream purified terephthalic acid producers, prompting a cut in PX demand.

... within weeks of the PTA capacities being back onstream, there was already talk of strategic cut-backs needed on the PET market ...

And these resulted in structural changes to the European PX market.

Consumers hit by weak margins have been delaying the settlements of their monthly contracts, with several consumers involved in a series of protracted agreements. (See chart of Europe PET margins squeezed by PX.)

Also, trading liquidity in the FOB Rotterdam spot barge market has declined to almost zero.

Fiber, PET producers face bankruptcy

Casualties of the tough trading conditions have been seen on both sides of the market this year.

In July, Diolen Industrial Fibers, the Netherlands-based producer of specialty yarns, went into the initial stages of bankruptcy.

The company blamed severe pressure in operating margins because of the strong rise energy and raw materials prices.

Margins were also been under pressure from increasing competition from the Far East as the low US dollar rate, particularly through the middle of the year that made imports to Europe cheap.

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PET producers Innit Polymers, formerly owned by Wellman Inc and Tergal Industries also filed for a Suspension of Payments entering the initial stages of bankruptcy proceedings and serving as a reminder to the market of the perils of being a non-integrated producer in the current climate of volatility, uncertainty and global economic slowdown.

The need for further consolidation in the PET industry and the current over-supply difficulties had already been underlined earlier in the summer when both the major suppliers of PTA in Europe - Interquisa and BP - declared force majeure within weeks of one another.

Despite the loss of plants representing some 1.7 million mt/yr of PTA production, the PET market scarcely reacted.

No major shutdowns were reported from resin manufacturers and buyers still able to source the majority of their PTA volume without difficulty.

Initial fears that there would be a run on product and that Asian imports would not be able to cover the shortfall quickly proved unfounded after it emerged that stock levels of PET were even higher than expected.

Indeed within weeks of the PTA capacities being back onstream, there was already talk of strategic cut-backs needed on the PET market in order to keep stocks in check heading into August and September.

Next page: PX producers under pressure

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