PET bottle chip processing spread back to Q2 level

Since September, traded price of PET bottle chip gradually weakens, and the spot processing spread also narrows to 1300-1400yuan/mt, down 1,000yuan/mt from the previous peak, and 700-800yuan/mt from the end of last month. On the one hand, export order delivery and intake recently performs poorly, and the support for China domestic sales declines; on the other hand, as the weather turns cooler, the operating rate of beverage producers gradually declines, and downstream pickup pace slows down. Meanwhile, although the cost of polyester feedstock futures once raises, PET bottle chip factory offer changes slightly and processing spread continues to compress.

At present, major PET bottle chip producers have basically sold goods for the next 2 months. However, due to volatile export shipping schedules, some bottle chip factories are selling more RMB goods recently. As for export order intake, major PET bottle chip producers begin to discuss Nov-Dec goods, some to Q1 2023 goods, while offer and bid for Sep-Oct goods are both few.

Since the exchange rate of RMB against the US dollar is significantly stronger than other currencies, the export order intake of Chinese PET bottle chip exporters were once suppressed by their competitors. For example, when RMB price was around $1,150/mt FOB earlier, Asian competitors offer as low as $1,150/mt CIF, which has a great advantage over Chinese goods in the total price. From the statistics of CCFGroup, the export order intake in August have dropped significantly to less than 250,000 tons, down 18.5% from the same period last year.

In the fourth quarter, the main focus was on the startup of new PET bottle chip plant from Sichuan Hanjiang New Materials and the restart of China Resources Chengold line. At present, the two companies may face the problem of raw material supply when they are put into production, but it is still possible for the two to be put into production in the fourth quarter, which has a certain impact on the follow-up supply and demand. In addition, currently, plants plan to shut for maintenance in the fourth quarter include Yisheng, Far East, Yizheng, Sanfame, etc. The specific production capacity is undecided.

As for the downstream market, according to the CCFGroup, the run rates of major beverage factories begin to decline significantly in mid-September, and gradually fall to 60-90% from the basically full-rates in the early stage, and some slightly lower at 40-50%. PET sheet plants sector, the operating rate of most PET sheet producers inch up to 50-70%, and some operated below 50% or even lower. In terms of edible oil factories, since the Mid-Autumn Festival has passed, the average operating rate has gradually dropped from the previous high to around 50-60%. It is reported that the stimulation of the demand for edible oil during the National Day holiday does not seem to be as strong as expected.

In export market, the main focus in the fourth quarter is the intensively maintenance of plants. At present, the total production capacity involved in the reduction and shutdown in the EU region is 2.06 million tons, accounting for more than 50% of the total local production capacity, including the maintenance of JBF, Plastipak, Equipolymers, NEO, Novapet, Indorama and other branch plants, among which the plant stopped in the early stage of JBF due to the supply of raw materials has not yet been restarted. Moreover, 2 PET bottle chip producers in Asia (in addition to Chinese mainland) plan to shut for maintenance in Sep-Oct, and the launch of the new koksan plant in Turkey is still being delayed (originally scheduled to start in August). As a result, the supply side is expected to gradually tighten in the fourth quarter, but at the same time the demand side will also weaken.

However, for PET bottle flake suppliers in China and other Asian regions, if energy and logistics costs in Europe and the United States continue to rise in the later period, the local demand for imported goods will remain. Although the demand in the fourth quarter will weaken to a certain extent, the contract negotiation in 2023 will definitely be the main area of the game between the two parties.

Generally speaking, China domestic demand of PET bottle chips has begun to weaken gradually from September to October, and the main factors affecting the market will gradually shift from supply and demand to cost-driven. However, if the processing spread is to be reduced to less than 1,000 yuan/mt, it will be difficult to achieve before the end of the year. On the one hand, although the sales of bottle chip factories are not as good as those of the first half of the year, the orders that can be delivered at present are still relatively sufficient, the market acceptance of Nov-Dec goods is relatively good and the sales volume at the end of the year is not too pessimistic. On the other hand, if the export order contract in 2023 can be negotiated smoothly, the sales pressure of the bottle chip factory in the later stage may be alleviated to a certain extent. Starting from 2023, many domestic PET bottle chip plants will be put into production, and the domestic competition may be further intensified in the later stage, and there is a high probability that the processing spread will return to less than 1000yuan/mt.