China PET bottle chip export continues to face freight pressure, while EU and US supply gradually recovers

Export freight skyrocketed recently, which has become a new norm. Some freight charges to the Americas and Europe have already exceeded $10,000 per 20-foot container. So what is happening in the European and American markets on the other side of the ocean?

Firstly, contract price of PET bottle chip in North America has risen to more than $2000/mt, and the spot price is even higher. DAK’s bottle chip plants in Brazil and Argentina still have some problems, and will now and then shut down for short term, hence operating rate is not stable. Local market supply will remain tight for some time. In addition, neighboring countries have also changed the trade pattern that used to be dominated by domestic markets or imports. For example, affected by the epidemic this year, Brazil imported only a few thousand tons of PET in the past few months, while its exports reached tens of thousands of tons, basically going to the major local markets in South America.

In the European Union, with the ineos's PTA unit gradual restarting, downstream PET bottle chip plants such as JBF and Indorama also gradually ramped up O/R. At present, most of the plants are running at full rate, the market supply gradually rebounded. Market price may be pressured down in short term. However, due to the high crude oil and sea freight rates, market participants believe that there is no reason for a sharp drop for the time being. It is reported that local PET bottle chips is mostly quoted around $1400-1500/mt, and large volume can be discussed at $1300-1350/mt.

In China, prevailing discussion was mainly around $920-950/mt FOB Shanghai, and equals to ex-factory price of $900-920/mt. The freight fee to the European basic ports is around US $6500-7000 per standard container, plus some additional charges, which is more than US $8000. Shipping cost to basic ports in South America is around US $9000-9500, but if you add some demurrage charge and additional deployment cost to the freight forwarder, overall cost of one container is more than US $10,000, and a container with a large size of 40 feet will approach or exceed US $20,000. 

Although the FOB price in China may have a certain window of opportunity compared with the local price in Europe and the United States, the freight cost of other bottle chip producing areas is much lower than that of Chinese enterprises, such as the freight cost of India to the Middle East and Europe is only around US $2000-2500. Although China’s FOB price has opportunity compared with local price in Europe and the US, the freight cost of other bottle chip producing areas is much lower than that of Chinese enterprises, such as the freight cost of India to the Middle East and Europe is only around US $2000-2500. Therefore, China's CIF prices doesn't have any advantage, and some factory has had to cut down their prices to $870-890/mt FOB China to recover some orders, which is nearly $200/mt cheaper than $1040-1080/mt FOB India.

However, only sacrifice of processing fees is not enough to recover the disadvantage brought about by the high freight charge, which may even further depress the market transaction. If take ex-factory price of $900/mt, the processing fee has been reduced to less than $130/mt, which is about 800yuan/mt. If it is calculated at the relatively low ex-factory price of $850-870/mt, the processing fee is only around 400-500yuan/mt, which is regarded as the most extreme price, and basically all the profits have been surrendered to the shipping company. After all, in a normal year, the freight to Europe is generally around $1000-1500, and to South America is around $1500-2000, but now it has basically increased several times, and one price a day.

In the later stage, as long as the problem of sea freight is not properly solved and there is no U-turn, Chinese PET bottle chip export enterprises, or other polyester export enterprises, will face the dilemma that the freight is more expensive than the price of the product itself. The delay in the shipping schedule of exported products will also bring more additional demurrage cost to enterprises, thus indirectly causing pressure on domestic sales. So in the third or fourth quarter, we believe that some PET bottle chip factories may consider maintenance plans to alleviate the possible pressure of inventory accumulation.