Escalating trend of virgin PSF replacing recycled PSF

Recently, the trend of virgin PSF replacing recycled PSF has been escalating. The price difference between virgin PSF and recycled PSF is low, leading to more downstream spinners switching from recycled PSF to virgin PSF. In some factories, as many as one-third to half of the downstream spinners are making this switch. The trend of this substitution is particularly seen in Hebei, followed by North Jiangsu. Additionally, some factories in Jiangyin, Wujiang, and Sichuan have also reported instances of such substitution, around 20%. While there is still some lack of precise data, but sales of recycled PSF have shown a declining trend this week.

Why is this happening?

For example, on Feb 29, 2024, CCFGroup virgin PSF price was 7,405yuan/mt, with processing fees of 4,350yuan/mt, making the total cost 11,755yuan/mt. Jiangsu-origin polyester yarn 32S price was at 11,650yuan/mt, resulting in a loss of 105yuan/mt. Meanwhile, a large recycled plant in Hebei (Hebei Jinyi) offered 1.4D HTLS close virgin PSF at 7,350yuan/mt after-tax ex-works, with processing fees of 3,500yuan/mt, making the total cost 10,850yuan/mt. Hebei-origin polyester yarn 32S made of close virgin PSF was 10,200yuan/mt, resulting in a loss of 650yuan/mt. While the prices of virgin and recycled PSF were similar, the profit for polyester yarn made of virgin PSF was 545yuan/mt higher than polyester yarn made of recycled PSF. Consequently, recycling factories continued to cut prices.

In terms of the timing of substitution, downstream spinning mills have been gradually switching, with some reporting occurrences as early as last year. The volumes of substitutions has been increasing, leading to a more noticeable impact recently. Some virgin PSF factories have also reported some instances of switching, with traders expanding sales to new regions recently.

Regarding the substituted varieties, solid re-PSF is the most impacted, with some occurring in woolen and non-woven fibers as well, although specific statistics are currently unavailable. In solid re-PSF, conventional products are mostly affected, especially the low-end products in North China that have relatively low requirements and can easily switch between virgin and recycled fibers based on profitability, with a preference for virgin fibers recently. It is difficult for substitution to occur in three categories: specified high-end and eco-friendly solid re-PSF, low-end re-PSF with significant price difference compared to virgin fibers, and niche differentiated varieties.

In terms of the volumes of the substitution, it cannot be ignored. Since Sep, 2023, the price difference between virgin and recycled PSF has been continuously narrowing. In 2024, the price difference in Jiangsu and Zhejiang has remained below 500yuan/mt, with the lowest in Hebei ranging from 55 to 200yuan/mt. Therefore, Hebei is an area heavily affected by the substitution, as high as 30-50%. Some factories in Jiangsu and Sichuan are estimated to have 20%, while others have not reported any such occurrences. In Zhejiang, most customers require GRS certification, hence the limited feedback on this matter.

If we roughly estimate a substitution rate of 20%, the monthly volume of the substitution would be around 40,000 to 50,000 tons, equivalent to approximately one-tenth of the volume of virgin PSF. However, it is unlikely such volumes will actually occur. Excluding the three types of difficult-to-substitute fibers mentioned above, a rough estimate based on samples from today suggest a substitution volume of around 15,000 tons, with a potential estimate of 20,000 tons seeming more reasonable.

Looking ahead, virgin PSF prices lack upward momentum, waiting a further improvement in demand. PTA inventory is still accumulating in Mar and inventory is hard to reduce based on 90-91% polyester operating rate. Price difference between virgin PSF and recycled PSF may remain low, and the substitution is likely to continue for a period. Keep an eye on the further development.