Mismatch--key word of China PET bottle chip market in 2021

Last year we mentioned a word "buy, buy, buy". If there is a new word for this year, it is: mismatch.

The first mismatch is the mismatch of time. The reversal of the off-peak season is obvious, the peak season is lighter than the off-season, and the off-season is hotter than the peak season. From the fourth quarter of 2020 to the eve of the Spring Festival this year, I give cash, you deliver became a buzzword, such as raising funds to hoard goods, hoarding goods at a low price, anyway, just one word: buy. This has led to a surge in market prices after the Spring Festival holiday, about 1500yuan/mt, but the downstream replenishment are not be able to follow post-holiday. In the first half of 2021, there are a large number of undelivered orders on the one hand, and on the other, new orders are slow. Therefore, the traditional peak season in the second quarter is lighter than the off-season, and the market complains a lot.

Such purchase timing lag is also reflected in the latest round of rise in the second half of 2021. The difference is that this time it is in the off-season, while traders and large downstream factories take turns to replenish stock.

Why is that? First of all, on the supply side, China domestic PET bottle chip plants turnaround was relatively thorough in the third quarter, and the power cut further restricted plants operating rate, spot supply rapidly reduced. And many traders were so bearish about the outlook that they seriously oversold PET resin. Later, they had to replenish at relatively high spot value on the eve of delivery due. From late September to early October, market turnover was dominated by traders, with a total of more than 200,000 tons.

From the end of October to the beginning of December, downstream end-user factories finally began to build stock. At the beginning of this round of procurement, it was in order to replenish spot goods to fill the unexpected sales volume, but later it gradually became a purchase competition between companies. You buy 50,000 tons today, and I'll buy 100,000 tons tomorrow. In merely one month plus, the replenishment volume of domestic large factories has reached about 800,000 tons, of which trading of 400,000 tons took only three days.

This has also created a spectacle in the off-season. PET bottle chip stands out among all polyester products. The spot discussion can reach 7400-7600yuan/mt, and the factory processing spread can reach 2000yuan/mt, and talking price for large forward order can reach 6800-6950yuan/mt, with processing spread around 1400-1500yuan/mt. The price spread between near term and forward orders can reach 700-800yuan/mt.

Some people say that spot goods are the same as gold, the more the better. However, it is a pity that not many people really have excess physical inventory on hand, and most of them are just enough to cover established contracts.

The second mismatch is spatial mismatch. Since the beginning of this year, under the attacks of extreme weather, epidemics and energy crisis, many overseas bottle chip plants in Europe and the United States have finally declared force majeure one after another. The instability of overseas supply and high surcharges have brought dawn to Chinese exporters. If the whole container is too expensive, then choose bulk transportation to reduce costs. If the shipping time is too long, we negotiate forward goods, and I’ll give you discount and time to think. Therefore, from August to November, China's export orders for PET bottle chip reached 1.4 million tons, monthly average at 350000 tons, accounting for about 40-50% of the monthly output, which can be said to greatly support domestic sales.

In 2022, PET resin volume to be delivered may reach 1.6 million tons post Spring Festival holiday, supported by intensive stock build by downstream factories as well as explosive export sales.

As we know, China domestic contract demand is at about 200kt per month, if we take H1 2021 output of about 5.21 million tons as the base, and then take into account Wankai Chongqing Phase II 600kt output by proportion, it is of high probability that the actual sales volume accounts for more than 50 percent of the output from January to June 2022. Therefore, it is expected that the actual control of market prices by the PET bottle chip factories will be further strengthened in the first half of 2022. But at the same time, we should also rationally see that the outbreak of exports this year lies in the overseas supply shortage, and there is ample room for arbitrage due to high local prices. Next year, if we strip out this part of the temporary sales volume, export volume is likely to be lower than this year. Of course, if Japan and United States can eliminate anti-dumping duties, then China's PET bottle chip export potential is still very great in the later period.