Will China PET bottle chip exports increase amid overseas production cuts?

Recently, with the drop in temperature, weakening demand and a significant increase in energy costs, PET bottle chip plants around the world have cut their operating rates or shut for maintenance in addition to the maintenance plan of about 2 million tons in mainland China.

According to CCFGroup, in the fourth quarter, the total production capacity involved in the reduction and shutdown around the world (except mainland China) exceeds 4 million tons. In the European Union, total production capacity involved in the reduction and shutdown exceeds 1.70 million tons, including JBF, Plastipak, Alpek, Equipolymers, NEO, Novapet, Indorama and other branches. Among them, one of the 160kt/year PET bottle chip production lines of NEO in Lithuania is expected to shut from late September to the end of the year, while PET bottle chip plant of Alpek in the UK plans to cut production in September due to rising local energy costs, involving a production capacity of 220kt/year. According to the factory, the current energy and raw materials can make the plant go through the fourth quarter smoothly for the time being.

In Southeast Asia, Indorama has maintenance plans in Thailand and India in the fourth quarter, and Lotte also plans to shut for maintenance for around 2-3weeks in November. PET bottle chip plant of Billion in Vietnam shuts for maintenance for around half a month. In addition, Sasa in Turkey also cut production as demand weakens.

In Americas, due to the impact of Hurricane Ian in the southern region of the United States, DAK America temporarily shut its 300kt/year PET bottle chip plant in South Carolina, and the restart time is uncertain.

At present, affected by the further fermentation of the conflict between Russia and Ukraine, the EU region is facing a shortage of energy and raw material supply, and the operating rate of local plants may also continue to decline in the later period. As the local raw material costs continue to be high and the euro against the U.S. dollar is also weak, downstream customers in the EU region still need to rely on Asian PET bottle chip suppliers to meet their needs, but mainly discuss 2023 contract. Not many orders need to be delivered in the fourth quarter.

In addition, the European Union decide to eliminate India's Generalized System of Preferences (GSP) treatment from January 1, 2023, which means that a general import tariff of 6.5% will be levied to products exported from India to the EU from January 2023, the 6.5% import tariff is an additional increase for PET bottle chip, for which countervailing duties existed previously. For China, the increased cost of prices from India to the EU can make up at least part of the spread in freight costs, but it should be noted that Indian suppliers will compete for market share in Southeast Asia and Africa in the later stage.

On the whole, together with the production capacity planned to shut for maintenance of more than 2 million/year in the fourth quarter of mainland China, the scope and quantity of production reduction and shutdown of the PET bottle chip plants have actually exceeded the level of nearly 3 million tons in 2018. Affected by this expectation, orders from China and other parts of Asia to Europe and the United States have increased significantly since the end of September. However, due to the slack demand season in the fourth quarter, PET bottle chip market is still in a situation of oversupply rather than shortage. At the same time, the global exchange rate market dominated by the US dollar has not returned to the rational fluctuation range. So although affected by the sharp rise in crude oil futures, the export market prices of PET bottle chip after the National Day holiday went up, but still did not exceed the pre-holiday level, which means that downstream customers are still not very optimistic about the market outlook. In the future, PET near-term goods may keep stronger than forward market.