The polyester chain in 2022 and beyond
Salmon Aidan Lee
Global Head of Polyesters
At the outset of a new year, the polyester chain looks determined to shake off the pessimism seen in much of 2020 and early 2021. Recovery is underway, and while headwinds remain there are also reasons to be optimistic about the year ahead.
So, what are the key themes to watch in 2022, and beyond? I explored this topic in a recent insight. Read on for an overview, and fill in the form to access a complimentary selection of the accompanying charts.
Overcapacity is growing across the polyester chain
Demand for polyester products has recovered beyond levels last seen in 2019, and many products have taken the markets by surprise with their resilience and tenacity. Fundamentals are pointing to a burgeoning polyester sector, but there is also worsening overcapacity throughout the chain.
Producers of feedstocks paraxylene, PTA and MEG could come under the most pressure amid a potential supply glut in 2022.
Price rises may not translate into improved margins for polyester’s raw material producers
Polyester prices have started to come off from the peaks seen earlier in 2021, and raw material prices have declined sharply as the overcapacity translates into oversupply. While we continue to predict an overall firming trend for prices of most products in the polyester chain – mainly due to heightened costs with the rebound in crude oil prices – maintaining profitability is another question altogether.
Some segments of the chain have actually fallen in the red. Paraxylene and MEG producers that are not integrated with their own raw material sources came under tremendous pressure in the latter half of 2021. Some paraxylene and PTA producers have resorted to novel ways to avert such ill fates, while most have turned to cutting back output to force a market balance and maintain a credible spread with feedstock costs.
Polyester’s supply chain woes heighten the challenge
The results of such actions were mixed in 2021. Supply chain woes have also further complicated the issue, as producers have to battle both feedstock costs and escalating freight costs.
The margin squeeze could worsen for some into the next year or two.
We don’t see 2022 ending this ordeal for most of these producers; in fact, the margin squeeze could worsen for some into the next year or two. Rationalisation of capacities has started and seems likely to amplify to become a norm in 2022, and beyond.
The futures markets could be an influential force
To mitigate such risks and pressure, the futures markets for PTA, MEG and polyester staple fibres have come in useful for many market players. But the futures markets attract many other less-traditional players too. The dearth of understanding of the fundamentals in the polyester chain among these players has added volatility to the markets. And this matters, because the Chinese market is the most important market in the polyester chain – what happens in the futures markets affects the physical markets and in turn sways international markets.
Sustainability is a game-changer for the polyester value chain
Besides the futures markets, other factors to consider when participating in this business include the sustainability drive that has taken the petrochemical industry by storm in the past few years.
In 2021, we saw the pandemic accelerate sustainability efforts, while the power restrictions in China between September and October (imposed to meet carbon emissions reduction targets) saw PET and polyester fibre producers forced to reduce operations amid power cuts.
Fundamentally, the polyester chain is facing a series of impacts going forward, from how reduced consumption of gasoline would affect aromatics availability, to the surge in demand for recycled fibres.
Want to see our polyester outlook in more detail? Visit the store to access the full report, which includes charts and more analysis of these themes. Or fill in the form for a complimentary extract.