PET bottle chip price may face downward pressure as demand recovery slow

Due to volatile international crude oil prices and continuously falling polyester feedstock cost, PET bottle chip value also declined to early Feb level, after brief increase at the beginning of the year.

As far as current understanding goes, the downstream market of PET bottle chip is still in the process of recovery, and O/R growth pace was mediocre. Beverage factories did not halt production during the Chinese New Year, so despite moderate O/R reductions, the overall post-holiday recovery situation is satisfactory. However, PET sheet factories operating rate was poor, and recovery was slow.

In East China, PET sheet factory operating rates can run at around 40-50%, while most factories in South China have not yet fully resumed production, which may gradually increase this week. In terms of edible oil plants, after the Lantern Festival holiday (Feb 24), as it is the off-season, plants operating rate has gradually decreased from around 80-90% before the Chinese New Year to around 30-50%. Meanwhile, since most plants have built PET stock pre-holiday, and polyester feedstock price was stable-to-soft, most PET downstream plants showed scarce interest to purchase PET. Hence PET trading was poor in the past week.

Regarding PET bottle chip factory orders, there are relatively sufficient backlog orders that have not been delivered, especially for exports, with some factories able to deliver orders for the first quarter exceeding 400,000 tons. However, the poor domestic trading performance after the holiday has somewhat offset the support brought by the previous export orders. Overall, based on the market's anticipation of potential processing spread compression following the launch of new facilities in the future, PET bottle chip factories are still inclined towards taking in new orders.

In terms of delivery pace, after the Chinese New Year holiday, PET bottle chip factory inventories increased once to 7-10 days, but due to acceptable pickups by beverage factories and some traders post-holiday, the top few chip factories were in a slight destocking phase in the first week after holiday. As of last Friday, the average inventory of PET bottle chip factories had only increased by 3-4 days compared to the last week before the holiday, averaging around 21 days or slightly below. Starting this week, as both domestic and export shipments will gradually commence, the destocking pace of chip factories is expected to accelerate. Some major factories may see queueing for some product specifications. However, due to the slower-than-expected downstream recovery, the overall inventory in February is estimated to increase slightly by around 100,000 tons compared to the end of January.

In March, both domestic and export shipments will enter an intensive delivery period. For domestic market, edible oil and PET sheet enterprises are expected to slowly recover their pickup speed, possibly not showing significant improvements until May. Beverage companies typically promote sales of juices and carbonated drinks in the first quarter, due to factors such as Chinese New Year consumption, and they usually strive to meet sales targets by the end of the quarter. From April to May, beverage plants usually start expanding bottled water distribution channels, gradually transferring from distributors to end-users like supermarkets and retail stores. Around late June, the production level and operating rate need to be determined by end-user sales performance. As a result, water companies' operating rate is expected to continue to rise from March onwards, with some operating at full capacity. In terms of exports, due to the suspension of logistics during the Chinese New Year, some orders have been delayed and mostly shipped at the beginning of March, leading to a more concentrated delivery schedule and faster inventory turnover in the short term. Therefore, PET total inventory in March is expected to slightly decrease compared to the end of February. At that time, market participants need to pay special attention to factory delivery situation. Looking at the facility aspect, apart from Yisheng Hainan and Yisheng Dalian new capacities, it is worth noting that new capacities in Xinjiang Tunhe and Yipu in March are unlikely to significantly affect the domestic market. There is limited capacity expansion in E. and S. China before Jun. However, since end February to March, Sanfame, China Resources Jiangyin, Anyang Chemical, and Dragon Special Resin are to restart. Overall operating rate may potentially reach around 90% (based on design capacity of 17.26 million tons, including the planned 300,000 tons new capacity from Anhui Haoyuan and 350,000 tons from Yisheng Dalian).

Overall, it is expected that the destocking efforts in the PET bottle chip market in the first quarter will be limited, and there may still be an inventory accumulation compared to the end of last year. Attention should be paid to the impact of new capacity on the market supply side. In the second quarter, some of the new capacity postponed from the first quarter is expected to come online successively, but this will overall scatter the stock accumulating risks. Furthermore, as it is downstream purchasing peak season, the impact on the market is relatively limited. Starting from the third quarter, PET bottle chip market will see large capacity expansion again. If new sales do not pick up, market sales pressure may gradually increase, thereby dragging down the market price.