Will PET bottle chip be the first to cut down O/R among all polyester products

Recently, PET bottle chip price is in the downtrend. On the one hand, support from raw material cost side is not strong; on the other hand, demand is weak, and downstream have built moderate stock previously. Currently, market is digesting stock and new order intake is mediocre. Calculating on CCFGroup price index, PET bottle chip processing spread has squeezed to within 800yuan/mt, some forward deal even below 700yuan/mt. Will PET bottle chip become the first product that cutting down O/R among all polyester products?

We believe that it is rare to see PET bottle chip factories to significantly cut down output during the summer months. Based on data tracking over the past 15 years, in a normal year the low point of O/R generally occurs around September to November, when downstream beverage factories undergo annual maintenance. Some PET producers may consider for synchronous maintenance during this time. In a few years, the low point appears around the Spring Festival. In the period of June to August, because beverage factories are in the peak season of consumption, the overall demand for PET delivery is high, and PET bottle chip factories generally will not easily consider reducing production, except for extreme circumstances.

Furthermore, a short-term cash flow squeeze is not enough for PET bottle chip factories to consider significant production cuts to maintain profits. Also, plants maintenance also incurs certain costs. The current situation has not yet reached the point where factories stop production to protect their value.

The biggest challenge facing the PET bottle chip industry currently stems from new capacity expansion. Since late April, a total of 1.65 million tons of new capacity from companies like Sichuan Hanjiang, Chongqing Wankai, and Sanfame have been put into operation, which has caused certain pressure on the market sentiment and a continuous compression of the processing spread. Additionally, in the future, nearly 3 million tons new capacity are expected to be put online, including Sanfame, Chengold, Yipu, Billion and Hainan Yisheng.

Will the market price and processing spread of PET bottle chip continue to drop? We believe that two factors need to be considered: firstly, whether upstream raw materials can gradually stabilize; secondly, the delivery speed of PET bottle chip downstream plants during the summer.

Currently, the short-term maintenance of high polymerization rate is not a major issue, and there is still expectation of new capacity for PFY. Therefore, polyester products factories can basically ensure rigid replenishment of raw materials, and there is currently no significant downside risk.

In terms of delivery speed, although downstream beverage factories have high operating rates, their overall pick up speed is average, and there has not been a phenomenon of urging bottle chip factories to ship goods. Therefore, delivery speed still needs to be observed over time. The delivery performance of the end-user plants in the later period may be the key link in whether the PET bottle chip price will undergo a turning point, otherwise it may cause PET bottle chip factories to consider turnaround in advance to reduce losses.