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Red Sea disruptions hit Europe’s PET suppliers; supply snarls around the corner

by Manolya Tufan - mtufan@chemorbis.com
  • 11/01/2024 (08:24)
Regional PET bottle markets opened the new year with rollovers to hikes, which was due in part to the lingering holiday lull in the first week of 2024. However, the Red Sea turmoil has been keeping players vigilant as the unfolding issue has taken its toll on ocean freight rates and logistics operations, signalling impending supply snarls given the union’s dependence on imports of PET and its feedstocks.
European producers have been keeping run rates at their plants attuned to the demand conditions amid a challenging economy and the off-season. Several PET producers struggle to cope with squeezed margins amid rising production costs, which prompted some of them to idle capacity at their PET lines. They also aim to avoid a supply overhang due to the arrival of import cargoes in bulky tonnages for some time now. That being the case, deepening Red Sea shipping crisis will unarguably bring with it tighter supplies.

EU secures more than half of PET imports from Asia

The global supply chain industry is on a tumultuous ride due to the threats on the key Middle Eastern trade route that already led to longer shipping times, additional surcharges and surging freight costs. Goods from Asia to Europe sail through the Suez Canal, which is the shortest passage.

The continuity of the crisis will threaten the current supply status as Europe relies on imports of PET, particularly from Asia, as it forms more than 50% of the EU’s overall PET imports. In January-November 2023 period, the top 5 polymer exporters to the EU27 were:
  • China (273,000 tons)

  • Türkiye (258,000 tons)

  • Vietnam (238,000 tons)

  • Egypt (167,000 tons)

  • South Korea (137,000 tons)

South Korea moved up on the list on a yearly comparison by raising its market share by 47% from 2022, while Indonesia also remained an important supplier to Europe with 36,000 tons.

China constitutes 20% of PET imports to the EU27

China accounted for around 20% of the union’s imports during this time frame, followed by Türkiye and Vietnam with similar market shares slightly below China’s. Should supply disruptions from Asia prove long-lasting, players will focus more on Türkiye and Egypt in a bid to eliminate risks.

European Commission introduces provisional duties on Chinese PET

There was no doubt that European producers were under the pressure of PET imports. The European Commission decided to impose provisional antidumping duties on imports of certain PET grades originating from the People’s Republic of China following an investigation that started in March 2023.

The provisional duties, taking effect by late November, differ based on producers and range from 6.6% to 24.2%. Meanwhile, industry players expect official AD duties to be implemented by late May 2024.

There is room for further increases

Regional suppliers sought hikes on their January prices in the light of recent developments. They could offer at higher levels regardless of costs, supported by lower availability inside the bloc and the awaited disruptions in the import flow.

Producers have been fulfilling mainly contractual commitments as they have been running at lower rates for months. They will not be able to ramp up to full rates in the foreseeable future given insufficient PTA supply both from local and import sources.

The market braces for further increases in the upcoming months given associated delays that come with the re-routing. Buyers are also wary of empty container shortages as the average sea freight shipping time from China to Europe is normally 30 to 45 days, while rerouting all the way around Africa adds some 3,000 nautical miles and up to two to four weeks of travel depending on the the vessel’s location. Carriers may have to reduce the number of port calls to offset the adverse impacts, according to authorities.

Delayed goods ahead of the Chinese New Year and high season would create a perfect storm. It is traditionally harder to arrange shipments from Asia due to the Chinese New Year in February. Seasonal preparations start from April-May, which will be affected due to the vessels arriving late in Europe.

Demand remains a drag, how will it react to the incident?

End user demand has been hit hard by the economic challenges, with demand in 2023 remaining below average. Prior to the Red Sea crisis, buyers were mostly sticking to their needs only purchases amid the off-season.

Being affected by the disruptions around the Red Sea, the buying sentiment is improving due to the uncertainty related to imports and the fact that buyers expect to see firmer levels in February as well.

Buyers prefer sourcing PET from Europe and Türkiye rather than Asia, with import prices being pushed up by freight rates changing on a daily basis. A player remarked, “PET cargos you secure right now will be delivered in April-May.”

On the flip side, surging ocean freight rates triggered warnings of inflation. Although supply woes lead to panic buying, demand for final products is not expected to improve dramatically. It is crucial to remind that end product pricing will also have to be adjusted in accordance with the rising freight rates, adding to the inflation strain. “Consumption in the mineral water sector was down by 6-7% in 2023 and we expect a similar reduction in 2024,” said a converter.
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