China PET bottle chip industry flanked by piling stock and poor exports

In 2021, freight rate has soared, containers are in short supply, and shipping delays have become the norm in export trade. The annual export proportion of Chinese PET bottle chip is about 30%, but it has gradually shrunk to 20-25% in the second quarter, which is not what it should be in a peak season at all. The average monthly export order from April to May is less than 200kt. The processing fee for export goods once reduced to around US $130-140/mt, whose gap with domestic figure gradually narrows.

In fact, since the fourth quarter of last year, there has been a substantial overdraft in domestic demand for PET bottle chip, and PET inventory once surged to around 1.9 million tons, about twice the current peak monthly production. However, due to the large pick-up volume and abundant orders in the short term, inventory pressure of PET bottle chip factory has been released obviously. By the end of 2020, the total inventory is still around 1.8 million tons, while average inventory held by the factories is only 700kt plus. By the eve of the Spring Festival in 2021, PET bottle chip stock of factories dropped further to around 300kt, driven by rising crude oil and polyester raw materials. The tightness in shipments continued after the Spring Festival, which also brought the last wave of sharp increases in the first five months of this year.

During the period after the Spring Festival, there was a pullback in sea freight charges, and the recovery of foreign demand has led to rapidly expanding price gap between RMB and export goods, which once reached more than 500yuan/mt to the maximum. The good export performance also gave confidence to domestic sales. PET RMB price once rose to more than 7500yuan/mt, and factories were hesitant to sell, mainly giving way to exports. The monthly export sales of individual factory once exceeded 100kt. This has also triggered an upsurge in shifting domestic sales to export, but the influx of low-cost goods has also dealt a blow to foreign purchases, and many foreign customers have shifted from factory direct purchase to purchasing through dealers.

After that, the continuous rise of export freight has broken the original rhythm of the industry, and the poor acceptance of export orders has immediately brought domestic sales pressure, especially the factories that did not receive enough orders. At the same time, the profit space of traders who take advantage of the price gap between RMB and export goods has also been greatly reduced. After bottle chip factory keeping the RMB price high for a period of time, the low-priced hoarded materials began to depress the market, quickly reducing the price gap between factories and traders from a few hundred to less than 100yuan/mt.

Being flanked, PET bottle chip trading once fell into a situation where there was nothing to talk about after May Day holiday, and the average daily price fluctuation range was no more than 50yuan/mt. Due to the large amount of pre-hoarding, there is a large number of invisible inventory. Small and medium-sized end-user customers are not out of stock and large customers prepare goods in advance. Even they build stock, it’s for forward goods. Bottle chip factory new order sales encounter difficulties.

Starting in June, 500kt/year China Resources Zhuhai III unit officially begins to affect the market, while Wankai Zhejiang II will restart after more than half a year of parking. Calculated only on theoretical values, the monthly production increase in June is expected to be around 50-60kt. If there is no reduction and shutdown of other capacity, the monthly output will reach 950kt in June and around 1 million tons in July, a new monthly high, far exceeding the estimated increase in end-user demand (export consumption is expected to be around 920-930kt per month from July to August). Factory inventory pressure will also rise further in the third quarter. In addition, according to CCFGroup’s recent understanding, the speculative hoarded inventory in early stage is still around 500-600kt, and the end-user hoarding volume is near this level, so it may not be the bottle chip factory to take the initiative to turnaround, but some lines are forced to stop after the processing fee being squeezed to negative. Therefore, we believe that the total inventory will slowly decline, but inventory accumulation pace of bottle chip factories will be further accelerated.

Export market, judging from the current rise in sea freight charges, most profits of export orders have been transferred to shipping companies or freight forwarders, and most of which are controlled by Europe and US, whose quotation for Chinese enterprises is also relatively high. As most of the export orders are by ocean route, the freight of other countries and regions can basically be $2000-3000/20-foot TEUs lower than Chinese mainland, and China's export advantage of PET bottle chip has completely lost. Although customers in some regions have demand, they are willing but unable to do so, they can only choose the best price. Even if the epidemic in some producing areas is becoming more and more serious, some overseas customers choose to purchase Chinese goods to offset the losses caused by shipping delays, they are only short-term orders and is not sustainable. Therefore, unless the sea freight declines in the second half of the year, the export orders of Chinese PET bottle chip enterprises may still be compressed at or slightly below 200kt, which is not enough to provide strong support for reducing the pressure on domestic sales.