How low will PET bottle chip plants O/R drop to?

Recently, with PET processing spread continuously being suppressed at around 300-500yuan/mt, factory plans for reducing production and halting operations begun to be implemented gradually. According to CCFGroup preliminary statistics, from end September to October, the capacity involved in closure, reducing production, or converting to fiber chip production may reach around 4 million tons. However, considering that some units have already reduced or halted production, the actual O/R reduction is expected to be about 14-15% compared to the recent peak, and the lowest point is estimated to be around 81-82% (73-74% based on maximum daily production).

The timing of production reduction and halting operations is slightly earlier than expected. Currently, the overall inventory pressure in PET bottle chip factories is not significant, but a lack of new orders is a major issue, and total inventory is increasing month by month. With expectations of new capacity being put into operation in the fourth quarter, PET bottle chip factories may not be in a hurry to deliver goods, but the weak growth in new orders will indeed affect their later O/R.

Figure 1. Comparison of extreme values of the operating rate of PET bottle chip factories in recent years (based on the design capacity)

*The minimum value for 2023 is an estimated value.

In addition, due to the excessive inventory in circulation, market prices are difficult to break through to the upside. Moreover, bottle chip factories may choose to reduce production to maintain prices due to the loss, which also limits the downward price space. In this context, with volatile raw material prices and an expectation of a slowdown in demand in the later period, the profitability of bottle chip factories is facing a great challenge.

However, compared to the extreme values of historical operating rate, the scale of production cut and halt in PET bottle chip factories this year is temporarily not as significant as in previous years. With a total of close to 5 million tons new capacity coming up this year, the current scale of production cut and halt may not effectively solve the problem of oversupply. Although there are still some maintenance plans in the later part of the fourth quarter, involving a few hundred thousand tons capacity, it is a drop in the bucket compared to the newly added capacity. Of course, for bottle chip factories that have not yet announced clear plans, it would be beneficial if they consider their actual situations and gradually arrange production reduction and halt plans to reduce market pressure.

In summary, considering the new capacity launch and the gradual recovery of closed plants, although the intensive maintenance is slightly earlier than previous expectations, the scale is not as significant as in previous years. The fourth quarter may still face more severe market competition. Given this situation, there is also a possibility of further postponement in the remaining new investment plans for this year, and market participants should continue to pay attention.