PET bottle chip market remains chilled, export freight costs weigh heavily

Since May, domestic demand for PET bottle-grade chips has remained sluggish, and export orders have dropped significantly-falling to just half of April's level. Processing spread has been compressed across the board. However, export orders still offer more favorable margins than domestic ones. The domestic processing spread for bottle-grade chips are below 300 yuan/mt, while FOB export processing margins are temporarily holding at around $70–90/mt.

On the domestic front, according to market feedback, deliveries in early Q2 were relatively healthy with the support of exports. However, performance worsened in the latter half due to excessive low-priced speculative stocking earlier, resulting in high levels of inventory. Small- and medium-sized end-users are not short of inventory, while larger buyers had mostly completed stocking. As a result, exports-once a key support for domestic sales-have weakened significantly due to soaring ocean freight costs. New orders have become difficult to secure.

The small price cuts are not effective in stimulating new orders. Steeper discounts often come at the cost of reduced processing margins. Recently, some transactions have been made regardless of margin losses, with producers prioritizing inventory clearance. Some plants offered ex-factory prices as low as 5,850 yuan/mt last week. Given the raw material trend, further price declines cannot be ruled out in the short term.

Raising prices to stimulate demand appears difficult. On one hand, raw material prices had surged too quickly earlier and are now showing signs of weakness, limiting cost-side support. On the other hand, previously low-priced goods are gradually entering the market, putting additional downward pressure on prices-especially as traders and end-users look to lock in profits. In the short term, the price range of bottle-grade chips in the domestic market may remain narrow, but further declines are still likely until a wave of production cuts or shutdowns materializes.

As for exports, overall demand in overseas markets during Q2 has actually been decent, as seen from the number of inquiries. So why has China's export volume declined? The main reasons are the sharp rise in ocean freight rates and longer vessel scheduling lead times. Meanwhile, the recent appreciation of the Chinese yuan against the U.S. dollar compared to April has also weighed on purchasing interest from overseas buyers. For May, export volumes are still expected to exceed 600,000 tons, but a noticeable decline is anticipated for June.

According to Shanghai Shipping Exchange data:

Europe routes: Freight rates (including surcharges) from Shanghai to major European ports rose from $1,200/TEU in late April to $1,587/TEU by late May, up 32.3%.

Mediterranean routes: From $2,089/TEU to $3,061/TEU, up 46.5%.

North America routes: From $2,272/FEU (U.S. West) and $3,283/FEU (U.S. East) to $5,172/FEU and $6,243/FEU, respectively-surging 128% and 90%.

South America routes: From $1,393/TEU to $2,797/TEU, up 100.8%, translating to around $127/ton for a standard 22-ton container.

(Source: Shanghai Shipping Exchange)

Data from Ningbo Shipping Exchange shows similar trends:

The freight index for routes to South America West doubled from around 605 points in late April/early May to 1,840 points by the end of May. The index for Europe routes rose from 764 to 1,068 points in the same period. Actual freight costs experienced by exporters reportedly more than doubled to India, tripled to South America, and increased by 1.5 times to the Middle East.

(Image source: Ningbo Shipping Exchange)

In conclusion, the domestic PET bottle-grade chip market is stuck in a stalemate between upstream and downstream segments, while exports are facing severe challenges from soaring freight rates. If domestic low-priced inventory remains high and export logistics issues are not resolved, this pattern of price volatility may persist for quite some time-until concentrated production cuts reduce supply pressure from unsold inventories. On the other hand, if freight rates gradually return to reasonable levels or the pace of increase slows, export activity could recover, helping to ease the sales pressure on Chinese producers in the second half of the year.