Correlation between virgin PSF and recycled PSF significantly weakens

In the past, when virgin PSF prices rose by 200-300yuan/mt, recycled PSF prices normally followed up to rise by 100yuan/mt, and when virgin PSF prices declined, recycled PSF prices would go downward. However, nowadays, the markets for virgin and recycled fibers are becoming increasingly independent. Often, when virgin PSF prices rise, recycled PSF prices do not move; and when virgin PSF prices drop, recycled PSF prices do not necessarily follow suit.

The reasons for this are twofold. On one hand, after substantial capacity expansion of virgin and recycled PSF, the market is oversupplied, leading to intense competition and narrower price fluctuations. For instance, the fluctuation range for HC re-PSF last year was only 500yuan/mt. The price difference between virgin and recycled PSF has been significantly compressed, frequently resulting in minimal price difference of 500yuan/mt or even recycled PSF prices higher than virgin PSF.

On the other hand, the supply of quality recycled feedstock market is tight and prices are hard to decline. The support from cost side to recycled PSF is strong. Without significant external forces causing sharp increases or decreases, recycled PSF prices tend to fluctuate mildly based on their own fundamentals.

Generally, conventional recycled fiber products are closely related to virgin fibers. During upward trends, virgin fibers rise faster, widening the price gap with recycled fiber, while during downturns, this gap narrows continuously. However, in recent years, the trends of virgin and recycled PSF have shown relative independence.

For 1.4D products, the correlation was extremely strong in previous years, with a correlation coefficient as high as 0.92 since 2015, peaking at 0.97 in 2019. Since the COVID-19 pandemic in 2020, the landscape has changed significantly, mainly due to low oil prices that year leading to similar prices of virgin and recycled PSF. Since 2021, with rising crude oil prices, virgin PSF prices have increased while the price difference between virgin and recycled PSF has widened. Recycled PSF now fluctuate more according to their own situation and downstream demand changes, weakening the correlation between the two. Particularly in 2023, their correlation has dropped to 0.56, marking a new low.

For HC PSF, the proportion of HC re-PSF capacity was large originally (approximately 10:1 compared to HC virgin PSF capacity in 2016) and the price difference with HC virgin PSF was high at 1,000-3,000yuan/mt. But due to high profits and capacity expansion, the price edge of HC re-PSF weakens gradually and the price difference narrows sharply. The correlation between HC virgin PSF and HC re-PSF, which was 0.84 since 2015 and peaked at 0.98 in 2019-2020, has significantly weakened to 0.43 in 2023. For example, some HC virgin PSF was sold with discounts last week, but HC re-PSF prices rebounded due to firm feedstock prices and some purchases from downstream markets. Recycled PSF market mainly fluctuates based on own fundamental.

In conclusion, in recent years, demand recovery has fallen short of expectations, resulting in severe oversupply of recycled PSF. When virgin PSF prices are high, recycled PSF struggles to rise accordingly; when virgin PSF prices decline, recycled PSF is supported by higher raw material costs and thus do not drop as much and the fluctuation range has narrowed. Therefore, the correlation between virgin PSF and recycled PSF decreases evidently.