Rice in polyester fibre usage

Pure Terephthalic Acid (PTA) is the basic raw material for the polyester industry. It is a petrochemical derivative produced through the high temperature oxidation of Paraxylene in the presence of Acetic Acid. PTA is used in the manufacture of polyester fibres used in textiles, and is also used to make PET resins for use in plastic bottles and packaging film wrap. To cater to the needs of the textile industry and aid its competitiveness in the international arena, it was imperative to have an available supply of raw materials.
As Pakistan is an agro-based economy and the fourth-largest producer of cotton in the world, cotton has traditionally been the predominant material used for textile production in Pakistan. This resulted in an over dependence on the commodity, and created a narrow product range for exports. This resulted in the industry becoming subject to unpredictable cotton quality and output, as cotton production is capped by limitations in natural resources.
Therefore PSF in Pakistan became increasingly viewed as a consistent substitute for cotton that was both viable and competitively priced. The rising demand for PSF is fuelled by various factors, such as the low average consumption of PSF in Pakistan which is significantly lower as compared to the Far East Asian average of approximately 3.0 kg per person. Changing domestic consumer preferences in favour of blended textiles are expected to increase per capita consumption to 1.9 kg by 2005. There is great opportunity for the increased production of blended textiles as the use of synthetic fibre as a percentage of Pakistan's raw material consumption currently stands at 19% as compared to the global average of 57%. As textile producers cater to the surging demand for synthetic textiles, there will be an increasing demand for synthetic fibres, especially PSF. Thus the PSF demand is expected to grow at a rapid rate of 9% p.a.
With both international and local demand leaning towards blended textiles, the need for domestic production of synthetic fibres was apparent and essential. The first PSF plant was set up by ICI Pakistan Limited in 1982 to provide the burgeoning domestic textile industry with a reliable raw material base. Since then there has been increasing investment in this expanding industry, due to the increase in demand for synthetic textiles. Substantial investment of US $1 billion has been made in the domestic PSF (US $500 million) and PTA (US $500 million) industries to ensure the local availability of these key raw materials for the textile industry.
In line with its pioneering status in the polyester industry, ICI set up the first PTA plant in Pakistan, "Pakistan PTA Limited", at Port Qasim in 1998 to provide the domestic PSF industry with its essential raw material. ICI faced considerable obstacles whilst setting up the PTA plant as the infrastructure required (centralised water and electricity supply, effluent treatment facilities, chemical jetties, tanks farms) was not provided at Port Qasim, whereas such facilities are provided at other industrial zones in other countries eg China and India. Hence, as the Services required for the PTA investment were not readily available at Port Qasim, ICI had to install the required infrastructure at a cost of US $95 million (water, electricity, ETP). ICI also had to enter into a contract with Engro Vopak Terminal Limited. On the back of which, EVTL constructed a chemical jetty and tank farms at a cost of US $80 million. For the supply of Nitrogen and Hydrogen, ICI entered into another contract with British Oxygen Company Limited (BOC) which set up a US $30 million liquid nitrogen facility and hydrogen producing unit to meet the Plant's requirement of compressed gases.
Although Pakistan has become self-sufficient in the production of PSF, it relies on the import of PTA, MEG and Paraxylene. In this regard, Pakistan lags behind China and India which have both invested heavily in their Petrochemical Industries, thereby providing the required infrastructure for the growth and viability of their manufacturing industries including the textile industries (see Table below). Pakistan's production of polyester products is not only constrained in volume, it also lacks vertical integration which is a key requirement for sustained economic growth. Whereas both China and India are now gaining self-sufficiency in the production of raw materials for their polymer industries, Pakistan still has to import the majority of its raw material requirement.
The sole producer of PTA in Pakistan, "Pakistan PTA Limited", has a nameplate capacity of 400,000 tonnes whereas domestic consumption is estimated at 644,000 tonnes. The Plant is struggling to fulfill domestic requirement as best as it can and is currently working at an operating rate of over 100%. However the annual import of PTA was over 200,000 tonnes in 2004 and is expected to increase to nearly 300,000 tonnes by 2006 (see Table 2 below), indicating further dependence on PTA imports in future.
This increasing reliance on the international supply of PTA and other raw materials is risky, as the international Petrochemical industry is a highly cyclical industry which can fluctuate from periods of abundant supply to those of very tight availability, leaving the dependent industry in a vulnerable position. Currently the Petrochemical industry is facing a tight demand-supply balance, especially for PTA, MEG and Paraxylene.
This leads to the requirement for a domestic Petrochemical Industry in Pakistan to avoid exposure to the vagaries of international flux. In fact, following the examples of China and India, the Government should conduct a feasibility for a Petrochemical complex which comprises a naptha cracker plant (for the production of paraxylene and related petrochemicals), whereas it should strongly encourage further investment in PTA.
The cost of setting up a new 600 tpa PTA plant (in terms of Greenfield Investment ie as an independent project) is approximately US $460 million. Of this amount, Pakistan-specific costs, namely investment in water supply and effluent treatment plant, (all of which, as already explained, are not available in Pakistan) and other infrastructure-related expenditure account for US $84 million. To encourage this new investment, the Government needs to provide an environment whereby the investor(s) is able to gain returns comparable to the same investment elsewhere. Unless such a situation is achieved, further investment in any industry would be limited.
The advantages of the production of PTA locally are manifold, namely that local production ensures the continuity of supply and prices through the cycle. There is a working capital benefit due to lower strategic PTA stock requirement, as well as reduced vulnerability to exchange and stock loss risk. Domestic polyester producers also benefit from the Pakistan-specific commercial, technical and logistical support; as well as the proactive development of product handling and storage solutions.
The Government has resolved to retain Pakistan's position as a leading textile producer post the WTO regime. To support this resolve, it must realise that investment in certain key raw materials is imperative.
Consequently, it will have to support this investment via either of 2 existing options, namely:
1. That the Government remove cost/infrastructure anomalies through the provision of the required utilities and infrastructure - namely water supply, electricity supply, effluent treatment plant, chemical jetties, tank farms etc.
OR
2. That the Government continue to provide incentives post-2008 in the form of tariff (15% on the import of PTA, calculated on the basis of pay-back on investment in infrastructure and utilities, assuming a 5-6 year payback period).
The urgent requirement is for an equal opportunity environment (in the global context); it is the Government's prerogative whether to provide it through efficient utility networks and infrastructure, or other tariff-related incentives.
It is of the utmost importance that these key issues be addressed immediately in order to invite investment, both local and international, in Pakistan.
Government policies should be investor-friendly and should remain consistent over the stipulated time periods.
As an investor which has demonstrated its commitment to industrial development in Pakistan, Pakistan PTA Limited looks forward to a favourable investment environment, with respect to future investments in the PTA industry of Pakistan.
TABLE 1: CAPACITIES (000 TONNES)

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                      2002     2003     2004     2005     2006     2007     2008

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China     MX          2598    3298      3398     3428     4288     5288     5798

          PX          1700    1995      2355     2400     3113     3845     4270

          PTA         2528    4309      4628     5175     6938     9980    12480

          PSF         3126    3904      5210     5800     6460     7130     7780

          Polyester  10059   12358     17147    24422    30187    32589    33204

          Polymer

India     MX          1799    1799      1799     1959     2610     2610     2610

          PX          1720    1720      1720     1906     2330     2330     2330

          PTA         1705    1735      1755     1945     2625     2925     3055

          PSF          617     691       699      796     1114     1114     1214

          Polyester   2045    2425      2775     3228     4023     4063     4253

          Polymer

Pakistan  MX            10      10        10       10       10       10       10

          PX             -       -         -        -        -        -        -

          PTA          400     460       460      460      460      460      460

          PSF          514     542       614      653      731      796      875

          Polyester    655     713       785      832      915      980     1066

          Polymer

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Source: Paraxylene & Derivatives World Supply & Demand Report 2004/05, PCI Xylenes & Polyesters Ltd
TABLE 2: PTA DEMAND IN PAKISTAN

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                      2001     2002     2003     2004     2005     2006     2007

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Total PTA Demand       469      566      630      644      702      765      834

- Sales from Local     280      319      365      426      452      468      468

 Production

- PTA Imports          189      247      265      218      250      297      366

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