PET bottle chip profitability significantly improves as turnaround plans carried out one by one

As PET bottle chip factories successively began implementing their planned shutdowns for maintenance, the average operating rate of domestic PET bottle chip plants has dropped to around 73.7% as of this Friday (based on a designed capacity of 21.47 million tons). This decline occurred significantly earlier than the previously projected low point in mid-February. Both domestic and international processing margins have improved to 567.8yuan/mt and $110/mt, respectively (calculated on the price from Thursday, Jan 22nd). Among them, actual capacity losses at factories such as Yisheng Hainan, Sanfame, and CRC Jiangyin range from 1.2 to 2 million tons, while Wankai Zhejiang's NO. 2 unit has reduced production by 50% due to equipment replacement issues, and Chongqing unit maintains a 20% production cut.

According to the previously announced maintenance schedules, the impact of this round of production cuts and shutdowns is expected to persist until late February to early March. Starting from mid-March, as previously idled plants resume operations (with individual units possibly undergoing maintenance), the operating rate is projected to recover to around 84–85% by April. However, due to a recent influx of capital into the market, raw material prices have surged rapidly, leading to a sharp increase in short-term cost pressures for the polyester segment. Compared to fiber products, major downstream end-users of PET bottle chip had already locked in most of their demand for the first three quarters of 2026 in the second half of last year. Therefore, if raw material prices continue to rise rapidly, previously unhedged orders may face significant paper losses. Although processing margins for PET bottle chip plants have improved noticeably in the spot market, if market prices remain high without corresponding demand, the gains may ultimately prove illusory.

Of course, during the recent period of rising prices, replenishment activity in the PET bottle chip market has been relatively favorable. On the one hand, market spot availability has significantly shrunk following concentrated plant maintenance, prompting many traders to cover short positions, especially those with high short interest (where trades are repeatedly passed among traders, from the first trader to the final end-user, but overselling at a certain stage may disrupt the cycle, triggering speculative replenishment demand that could be tenfold or even several dozen times higher). On the other hand, small and medium-sized downstream end-users still tend to buy on price rallies (even though major end-users had already made bulk purchases at lower prices), and there is also pre-holiday replenishment demand ahead of the Spring Festival. As of this Friday, the average inventory at PET bottle chip factories has declined to slightly above 12 days, significantly lower than the high level of 15–16 days during the same period last year. This will particularly pressure traders with basis pricing or small and medium-sized end-user enterprises. However, if polyester raw material prices rise further, it would also mean that the cost of inventory accumulated by PET bottle chip factories around the Spring Festival will be higher, introducing uncertainty into the post-holiday market. If prices correct down later, PET bottle chip factories may passively bear the risk of inventory depreciation. Therefore, in response to some market participants' inquiries about whether bottle chip factories might restart idled units early due to improved processing margins, we believe that some factories may instead choose to moderately reduce operating rate during the Spring Festival period and relatively control spot sales.

Additionally, high inventory has been a recurring topic this year. According to CCFGroup statistics, total inventory of PET bottle chip was around 3.39 million tons at the end of December. However, a significant portion of this is committed to exports, pre-ordered contract volumes from major end-users, and relatively fixed inventories such as new annual contract shipments from traders. Some bottle chip factories may account for 50–60% of this, especially since pre-holiday spot contract volumes are likely concentrated in the hands of a few large traders, whose willingness to release them to the market remains uncertain. Consequently, the actual market inventory structure is relatively fragile. If PET bottle chip production cuts and shutdowns increase or contract volume declines for any reason, market liquidity could tighten rapidly. In particular, export orders often require specific specifications, and short-term concentrated production of a particular export specification at certain factories may also lead to shipment delays for other specifications.

In summary, as PET bottle chip production cuts and shutdowns are gradually implemented, low-priced supplies in the market are gradually diminishing, while PET bottle chip processing margins have also improved on paper. However, current market concerns revolve around whether transaction volume in the PET bottle chip market can continue to follow through and digest the benefits of improved processing margins once the frenzy subsides amid persistently high raw material prices. We believes this still requires further observation.