PET bottle chip downstream starts procurement mode while exports expected to weaken

Recently, as forward price declined to near the expected price, PET bottle chip downstream manufacturers generally began to build stock. Till last Friday, downstream procurement has surpassed 100kt.

Currently, the price spread between spot and forward goods can be up to more than 1000yuan/ton. On the one hand, the inventory of PET bottle chip factory continues to be low, although spot tightness has eased, market delivery is still not loose. The spot price by traders is basically the same as the price of PET bottle chip factory or at moderate premium. On the other hand, there is more processing space for forward goods. Downstream factories are willing to continuously purchase, at the same time, PET bottle chip factories are also willing to give greater discounts. Therefore, although the bidding price for Q4 orders has fallen below the 8000yuan/mt, according to the raw material futures costs in different months, the processing spread of forward orders can be locked at around 1400-1600yuan/ton, which is still considerable.

However, different from the continuous replenishment of large downstream factories, small and medium-sized downstream customers are at loss. Since the second quarter, many sheet customers have increased the purchases of scrap materials, recycled PET chip and bright chip as raw materials instead, and operating rate has also declined significantly because of epidemic control, regional power ration and reduced orders. With the power restriction policy coming to an end, the operating rate of PET sheet enterprises has also recovered. O/R of some PET sheet plants in East China has increased from less than 50% to 60-70% at present, while O/R of many sheet enterprises in South China is still less than 50%, some better at around 50%. Of course, for small and medium-sized customers, their own consumption is small and the switching is flexible. In the stage of high raw material cost, some enterprises purchase leftovers and bright chip as raw materials, while sell out the virgin PET bottle chip, to obtain part of the speculative margin. 

In addition, it should be noted that due to exchange rate fluctuations and the decline of crude oil futures, PET bottle chip export has begun to weaken, and its support for domestic sales has also declined. Currencies of many overseas countries have depreciated significantly since August, such as India and the Middle East, and US dollar-denominated export quote have been significantly lowered some time ago, it is reported that some CIF quotations are basically similar to China's FOB quotations. Thus Chinese PET bottle chip factories have lost all their advantages in the short term. China’s PET bottle chip export order intake in August was only around 200000 tons, which showed a significant decline both on year and on month. However, taking into account the relatively unstable shipping schedule this year, we need to take the total shipment volume of 2-3 months as the reference range. Export shipments from August to September will still fluctuate near high levels, and shipments are expected to decline gradually after October.

Generally speaking, in the later stage, with the restart of Chengold and new launch of Sichuan Hanjiang New Material plant, supply demand pattern may alter, and price spread between each month will probably narrow gradually. However, from the experience of previous years, the opening of the new line may take some time to debug, so the tight supply of PET bottle chip industry in September may not be improved immediately. We expect PET supply to gradually return to the normal in the fourth quarter.