PET resin market focuses on plant operation with escalating divergence

Recently, the price discrepancy between the PET bottle chip factory offer and the actual acceptable market price has widened, and the spot processing spread has also dropped to within 1,000yuan/mt from 2,000yuan/mt.

The reasons for the decline in both price and profit of PET bottle chips are mainly due to three points. First, the price of upstream raw materials has been weak for a long time, and there is little support for the RMB price of bottle chips. Second, most of the downstream large customers have finished purchasing in the fourth quarter and begin to negotiate the 2023 contract. Orders of small and medium-sized end-users are mediocre, and most of them are not willing to continue to replenish as the inventory purchased in the previous stage remains. Third, some traders offer lower to execute contracts.

Seeing from the upstream cost side, whether it is crude oil or PX-PTA industry chain, the recent market supply and demand pattern and trading sentiment are relatively weak. Influenced by the global economic recession and inflation, and the continued momentum of aggressive interest rate hikes in Europe and the United States in Nov, the United States will release strategic reserves and international crude oil prices in the near future are easy to fall and difficult to rise. As for PX, although the spot supply is tight, the impact of new production capacity in the later stage gradually emerges and market prices are under pressure. Affected by typhoons and epidemics, the operating rate of PTA plants declines in the short term. The spot-futures basis strengthens, and processing fees expand. However, it is still dragged down by the polyester demand. In terms of MEG, with the gradually restart of the plants, MEG inventory accumulates in the fourth quarter and the support from fundamental gradually weakens, so it is expected that MEG may in weak consolidation in the short-term.

From the perspective of the downstream of PET bottle chips, most soft drink enterprises are in the maintenance season, and plants have turnaround by turns. Most producers are operated at around 40-80%. Most of the edible oil plants are operated at around 50-70%, and the overall end users’ demand is mediocre in the fourth quarter. PET sheet plants sector, the operating rate of most PET sheet producers are around 70-80% in East China, and at 50-60% in South China. Due to the high price of PET bottle chips in the early stage, sheet enterprises have gradually reduced the purchase volume of PET bottle chips by replacing them with bright PET fiber chip and r-PET. Even though the price of bottle chips has been partially lower than that of bright PET fiber chip in the short term, buying interest of most sheet enterprises are still not high as the previous raw material inventory has not been used up.

In the intermediate trading link, unsold inventory in some contract traders is relatively large. If they do not take orders in advance, the inventory pressure may be heavy in the later stage, so the price falls rapidly after the National Day holiday. Affected by this, the spot purchasing atmosphere in the PET bottle market cools rapidly after the first working day in October. Meanwhile, although downstream beverage and edible oil producers mainly purchased Q1-Q2 2023 orders, the trading price of few Oct-Nov goods also dragging down the market prices. In the same month, the price discrepancy between large downstream factories and small and medium-sized customers once reached 300-400yuan/mt. Under the influence of such a precedent, recently, some traders adjust the spot price to 7300-7350yuan/mt, which is obviously contrary to the will of bottle chip factories to stabilize spot prices.

In terms of exports, many overseas bottle chip plants have cut production and shut for mainteance at present, especially in the European Union. At the same time, the procurement demand has also weakened in winter. Taking into account the shipment schedule and delivered price and other reasons, many overseas European customers temporarily purchase from neighboring countries or duty-free regions. The price advantage of Chinese goods to the local area in recent months is not strong, and recently most traders purchased 2023 contract. Therefore, in the short term, the support of export side of China's PET bottle chips for the domestic RMB spot is also weakening. It is highly probable that the social inventory of bottle chips will gradually accumulate before the end of the year.

In the fourth quarter, the new production capacity of Chengold (China Resources) and Baosheng Sichuan (Hanjiang New Material) is suggested to be concerned. Also, the implementation of the plant maintenance plan of the PET bottle chip factory also needs to be followed up. In November, Yisheng, Far Eastern and Sinopec Yizheng plan to shut for maintenance and cut production. In Dec, China Resources and Dragon Special Resin have the maintenance plans.