The new characteristics of the competitive landscape in China's PET bottle chip industry

After experiencing three years of epidemic, new characteristics are emerging in the development of China's PET bottle chip industry. On the one hand, the industry concentration is further lifting, and manufacturer's marginal income gradually shrinks. On the other hand, downstream demand is becoming more subdivided and more players are entering the market.

The industry concentration of top enterprises has reached 80%

In terms of competition, the number of PET bottle chip manufacturers is gradually increasing. The industry concentration of major plants has evolved from less than 30% over a decade ago to nearly 80%, gradually forming an oligopoly competition pattern. Currently, the pricing influence of the top four bottle chip manufacturers, also known as C4, has basically formed a pattern, and the impact of plants change, promotions or price increases by other manufacturers is very limited. At the same time, due to the relatively complete upstream and downstream layout, some major PET bottle chip manufacturers have clear cost advantages, and coupled with a comprehensive logistics and warehousing system, their market share is increasing year by year.

Figure 1. Industry concentration of top enterprises

However, more players will join this industry reshuffle in the future, including Sichuan Hanjiang, Fujian Billion, Anhui Haoyuan, Zhejiang Tiansheng, Xinjiang Yipu and Fuhai Group. In addition, some old equipment is expected to gradually be phased out as they have been running for a relatively long time and have no significant cost advantage in processing. 

Subdivided downstream demand flow

Looking at downstream demand, soft drinks and bottled water previously accounted for over 80% of the demand for PET bottle chip. However, in recent years, downstream non-bottled packaging demand has also increased due to the cost-effectiveness of PET. Even after the industry reshuffle in 2022, the current demand for PET by sheet manufacturers and other packaging companies has remained at or above 20%. At the same time, internal consolidation is beginning to occur among sheet manufacturers, similar to the industry reshuffle that occurred in the early days of chip-spun PFY producers. For instance, cost of direct production with polyester raw materials is way lower than purchasing bottle chip and using a two-stage process to produce sheet, and sheet manufacturers with differentiated specifications have further improved their survival space. In addition, the proportion of exports is gradually increasing, and in 2022, it has approached 40% of total demand, which indicates that overseas markets have begun to become an important development channel for PET bottle chip enterprises, and its impact on domestic sales is also gradually increasing.

The high-profit cycle comes to an end

The high-profit cycle of PET bottle chip industry is coming to an end, as a massive amount of new capacity is being put into operation. According to the latest statistics, the PET bottle chip newly increased capacity in China in 2023 is expected to be around 4.6 million tons (slightly lower than the planned 6.1 million tons), with an expected increase in effective production of around 2 million tons. However, due to the obstruction of overseas economic recovery, the industry's export orders in 2023 are not good, and it is expected that the industry may rely on internal circulation, with an expected increase of around 7-8% in domestic demand. Roughly speaking, the PET bottle chip market is likely to see piling stock this year, with a significant increase in output. Before the intensive plants shutdown appears, the unit profit of PET bottle chip will inevitably be sharply compressed.

In the future, with the elimination of some competitively disadvantaged equipment, the industry cycle may once again enter the profitable range. From a historical perspective, this time point is likely to be 3-5 years away, but the recovery of demand still needs time, and the changes in the industry's internal competition pattern need to be further observed.

Change sales and procurement strategies

In the past, downstream end-user procurement was generally based on a strategy of purchasing as needed. In the past two years, it has shifted to purchasing one quarter in advance. By 2022, some large factories began to choose to procure half a year in advance after judging the price point. These changes in procurement strategies mean that downstream end-user plants had shifted from seasonal procurement to price-oriented procurement in 2023. On the one hand, some large suppliers have basically mastered the procurement rhythm of purchasing on need pattern, so some downstream enterprises believe that they cannot completely obtain low prices. On the other hand, in the past few years, the supply of PET bottle chip in the market has been tightened, and bottle chip manufacturers had relatively strong discourse power. End-user plants will generally buy at high prices if they keep producing on spot materials. Therefore, big factories could take advantage of their large amount of consumption and complete their later-stage procurement when PET price stands low, it may be a good procurement strategy. Of course, this requires purchasing personnel to be more precise in controlling prices.

Financial and speculative properties strengthens

PET bottle chips are already products with a strong speculative property. Normally, for a spot order, only a 10% deposit is required to complete the purchase and conversion, and a high leverage ratio can be used. With the news of PET bottle chip being listed on the futures market, futures and asset management companies have begun to intervene in the spot trading of PET bottle chip, hedging them with raw materials or other product futures, enhancing the financial properties of PET bottle chip.