Declining global lint prices put polyester chain under pressure (Pakistan)

Pakistan yarn exporters are finding it hard to penetrate into the global yarn market as the prices of the commodity are declining.

With declining global cotton prices in anticipation of another bumper crop, polyester chain has come into further pressure and prices of PTA (Pure Terephthalic Acid), raw material of polyester chain declined to $880 per tonne, lowest since September 2010 while primary margins fell to $70 per tonne, even below breakeven level. These are 20 months low.

A fibre expert said due to shortage of polyester and its feedstock, PTA is likely to remain under pressure led by slow textile demand, heavy cotton inventory and additional PTA supplies coming online.
Cotton prices remained under pressure due to higher inventory levels. Similarly, global cotton stock to use ratio has soared to 63 percent, highest since 1986.

He said rising levels of inventory were due to lower operating levels in China caused by lesser textile demand from Europe and increasing cotton production.

Lotte Pakistan PTA Limited operates in the industrial organic chemicals sector. Lotte Pakistan is a Pakistan-based company engaged in the manufacture and sale of PTA, a raw material used in the polyester industry.

With PTA prices remaining low, the expert said there would be a revision in Lotte Pakistan PTA earning forecast for the calendar year 2012 fell to seven paisas per share on account of subdued PTA-Px margins.

Prices of PTA have declined by 21 percent since start of 2012 and reached to the lowest level of $880 per tonne. Moreover, average PTA prices in June 2012 are lowest since September 2010 mainly led by sharp decline in cotton prices.

Such low margins were witnessed in 2007. Further, average margin in second quarter of 2012 to date is approximately $108 per tonne, which is almost in line with the preceding quarter. This will lead to another round of lower earnings in second quarter of 2012 as well.