PET bottle chip industry run to quickly rebound with logistics congestion easing

Recently, with the gradual dredging of domestic traffic and logistics, the transportation and delivery speed of raw materials and PET bottle chip have also improved. As of April 20, the average O/R of domestic PET bottle chip factories had risen to around 84.5% (around 94.1% based on a design capacity of 11.71 million tons), which had recovered most of the O/R cut caused by the epidemic. Calculated on design capacity of 11.71 million tons, O/R of China PET bottle chip plants is expected to lift further to 100% around end April-early May.

Although the recovery of the supply side is relatively fast, the O/R of downstream factories in many parts of the country is still poor, affected by the regional control caused by the epidemic, which is prevailingly lower than that of the same period in previous years. However, in areas where the epidemic is relatively stable, downstream and bottle chip factories operation are relatively normal, and most of which are preparing for the peak season.

So far as we know, operating rate of major beverage factories stands around 60-70% in the first half of April. At present, only about half of the beverage factories are in full run. Running rate of sheet factories in eastern China once dropped to 30-50%. Some factories said that if the follow-up orders failed to keep up, they might consider suspending production for a period of time. O/R of PET sheet industry in South China is around 50-60%. As for the edible oil plants, the average running rate is about 50% at present, and is still declining in some areas that are affected by the epidemic. With the relief of traffic congestion, operating rate of downstream factories is expected to rise one after another at the end of April and the beginning of May.

In addition, exports were relatively good in the first half of the year, which have greatly helped bottle chip factories digest inventory. Currently, mainstream bottle chip factories are negotiating materials for June-July delivery, with only few still selling May goods. Looking at the export orders from October last year to March this year, factories’ total export order intake in the past six months is about 2.27 million tons, and calculated on 100% match order intake and delivery model, excluding the 1.83 million tons goods that were shipped previously, March delivery volume is estimated at 430-440kt. Of course, this is theoretical, in practice it still depends on the shipping schedule and the speed of port delivery. In April, affected by the epidemic, the shipping speed of Shanghai Port and Zhapu Port slowed obviously. However, under normal circumstances, regardless of the loss of shipments affected by the epidemic, if we estimate on the export order intake in the past 3-4 months, the average monthly export order intake will be about 390kt theoretically. Then, the delivery volume in April is expected to be 390-400kt. Hence, total stock level may inch down to 850-900kt by end-Apr. Actual PET bottle chip exports in Mar totaled 361kt, slightly lower than the estimated figure, which means the epidemic has to some extent slowed export delivery.

Generally speaking, although export shipping date has been extended to June-July, except for tight supply in domestic market, overall demand is greatly suppressed by the epidemic, hence the market supply may keep relatively loose in medium-long term. Later on, with launch of new capacity and restart of old units, chance of PET bottle chip stock to accumulate in Q2 is increasing, and processing spread may gradually shrink. If export order intake pace slows down in the second half year, domestic sales pressure may enlarge, and bottle chip plants may arrange turnaround ahead of time.