Why PET bottle chip plants still maintain high operating rates

Recently, the PET bottle chip market has shown a pattern of rising prices but shrinking trading volume. Following the price hikes, weak transaction has led to a general price correction in the market since last weekend. However, due to significantly compressed processing spread, bottle chip producers showed little inclination to lower prices. So why are PET bottle chip plants still maintaining high operating rates?

There are three main reasons. Firstly, strong domestic and export shipments in Q2: The second quarter typically sees high shipment volume for both domestic and export markets. With robust order bookings in earlier periods-particularly for exports-factories need to ensure stable deliveries. Secondly, although the book profitability of spot production currently appears unfavorable, previous orders secured with low raw material costs can still generate marginal profits. Thirdly, inventory pressure of PET bottle chip plants has gradually shifted to traders and downstream sectors, with limited short-term stress. Some manufacturers continue to alleviate temporary inventory accumulation by transferring stocks to external warehouses, using time-based strategies. However, the current high industry run may not be sustainable in long-term. We anticipate that between late May and mid-June, considering potential fluctuations in processing fees, average operating rates of bottle-grade chip facilities may experience periodic volatility.

Additionally, the recent short-lived rally in raw material futures had limited practical impact. Most traders and end-users restocked during earlier low-price periods, resulting in sparse high-price transactions. The earlier futures surge likely stemmed from reduced tariff concerns post U.S.-China trade talks and a refocus on fundamentals, such as raw material plant maintenance and high polyester operating rates. However, as downstream polyester producers face cash flow losses and begin proposing output cuts, raw materials futures prices have started retreating. Actual implementation of these cuts remains to be seen, but polyester operating rates may stay high in the near term. Export-driven support may also weaken as the export momentum for other polyester products diminishes. Market participants should monitor trends closely. If overseas restocking persists, domestic polyester demand could retain some support.