PET bottle chip processing spread constantly low, will there be a significant output cut ?

Recently, the cost of upstream polyester raw materials has been consistently high, leading to passive increases in spot prices of PET bottle chip. However, market demand is limited. At the same time, the processing spread of PET bottle chip factories has been suppressed for a long time at around 500yuan/ton, and even recently approached 400yuan/ton, leading some plants to start implementing plans for production cuts or consider them.

Will there really be a large-scale production cut in the PET bottle chip industry? In reality, some PET bottle chip factories have already quietly reduced their operating rate as processing spread have accelerated their decline. However, compared to the same period in previous years, the average operating rate of PET bottle chip factory this year is relatively higher.

Based on statistics regarding facilities that have already cut down production or shut down, the total capacity involved is around 1.3 million tons (excluding long-term shut facilities and facilities that are not operating at full capacity on a daily basis), accounting for approximately 8% of the current designed capacity. There are still plans for a small amount of production conversion or production cuts, including rotational downtime for a major domestic factory. One plant in E. China may shift 150kt/year line to produce PET fiber chip. Another plant also has such plan. However, since the output reduction and maintenance is not concentrated all in one period, and there will still be at least 900,000 tons of new capacity to be put online later on, the impact on operating rate is very limited.

However, according to current plans, the average operating rate of domestic PET bottle chip factories is expected to decrease to around 80% or slightly higher (around 90% based on design capacity). In fact, compared to previous years, this level of production reduction is very limited and has hardly brought about any significant changes in market supply and demand. Looking at the price of raw materials this year, although the price of polyester raw materials has risen rapidly recently, for most of the first eight months, it was relatively low. Therefore, the cost pressure on PET bottle chip factories is not very high, and they have accumulated a significant amount of funds in the previous years. Thus, even though some bottle chip factories have considered production cuts or shutdown, there haven't been many decisive actions taken at present.

It is not very accurate to speculate on PET bottle chip factories' recent output reduction or shutdowns based on the factor of compressed processing spread in the short term, especially considering that the processing fees of some new equipment in recent years have already reached relatively low levels. 

In reality, the reduced production or closure of facilities in PET bottle chip factories is more attributed to the significant reduction in new orders. Since the beginning of this year, inventory levels in PET bottle chip factories have not been high, and there have even been supply shortages in some months of the first half of the year. However, due to the insufficient order intake in the second half of the year, there has been an expectation of increased inventory pressure for some PET bottle chip factories in the later period. Recently, those bottle chip factories with insufficient domestic and export orders are experiencing sales pressure.

The second half of the year is a turning point for inventory flow in the PET bottle chip industry. Due to the increased O/R of end-user sectors this year, actual market demand is still growing. However, since the supply has been increasing rapidly since the end of the second quarter, PET resin total inventory will gradually rise. If the current high operating rate is maintained in the later period and export orders do not see much improvement in the short term, the situation of excess domestic supply may become severe. So, whether it will be a passive production cut or proactive maintenance, let's wait and see.