Substitution of virgin PSF for re-PSF may be seen with narrower price spread

In the report of Three Major Difficulties on Recycled PSF Market, we have mentioned that recycled chemical fiber plants are difficult in purchasing feedstock, but recycled costs are hard to decrease and recycled chemical fiber faces pressure, which may lead to narrower price spread between virgin PSF and re-PSF, so substitution of virgin PSF for re-PSF may be seen.

On Oct 31, spot PSF price was 7,550yuan/mt, PSF Jan contract was 6,514yuan/mt, with a spread of 1,024yuan/mt. Spot PSF-PSF futures basis keeps expanding. With weak anticipation on macroeconomic and demand, PSF Jan contract has dived recently, and most market players expect spot PSF prices will reduce, leading to lower price spread with re-PSF. If virgin PSF prices fall down to 6,500-7,000yuan/mt, close virgin PSF prices face large downward pressure.

The downward space for PET flakes is supposed to be limited, and if macro environment has no extreme changes, the decrement is likely to be 200-300yuan/mt. Close virgin PSF prices are assessed based on different feedstock prices.

Note: recycled chemical fiber plants use feedstock at different price level and different proportion based on products and demand. The table is showed briefly.

Overall, price spread between virgin PSF and close virgin PSF is likely to be within 500yuan/mt in the future and substitution of virgin PSF for re-PSF may be seen. The price trend should be watched closely. 

Nevertheless, if macro economy sees extreme changes, such as crude oil prices return to a low, and plants cut production largely with inadequate demand and PET flakes consumption in non-recycled chemical fiber fields reduce, recycled chemical fiber plants can dampen PET flakes again. Based on historical market, PET flakes prices have further downward space.

In addition, currently, low-priced HC virgin PSF is basically flat with high-priced HC re-PSF, at around 7,700yuan/mt. On Oct 31, the price spread between HC virgin PSF and HC re-PSF was 780yuan/mt, later, the price spread may keep shrinking.