China PET bottle chip price to face multiple rounds of adjustments

In 2024, the PET bottle chip industry in China is facing both internal and external challenges. On one hand, domestic capacity may double within two years, leading to increased supply pressure. On the other hand, sea freight rates have been continuously increasing since the second quarter, causing some export orders to be temporarily redirected to domestic warehouses, indirectly adding to domestic sales pressure.

Against this backdrop, the PET bottle chip industry has entered a sluggish period since mid-May, with trading activities at a standstill and prices fluctuating within a narrow range. Due to excessive stock build in the previous period, significant hidden stocks exist in society, leading to no shortage for small to medium customers. Large customers generally build stock in advance, and even they restock, it's mainly forward goods, leaving PET bottle chip factories struggling with new sales. Additionally, the substantial price gap between new brands and traditional mainstream bottle chip has prompted some customers to switch from selling old contracts to purchasing new brand contracts.

Starting from June, PET bottle chip industry entered a period of concentrated capacity expansion. Planned facilities include Yisheng's 350,000 tons, Sanfame's 750,000+750,000 tons, Sinopec Yizheng's 500,000 tons, Sichuan Hanjiang's 300,000 tons and Yisheng Hainan's 600,000+600,000 tons. Although Wankai Zhejiang, Wankai Chongqing and Yisheng Hainan have maintenance plans in the later stage (subject to possible delays), if no other units reduce or stop production later on, the monthly production of PET bottle chip in the second half of the year will remain above 1.3 million tons, even exceeding 1.4 million tons. Despite the potential for double-digit demand growth, this will not change the continuous accumulation of PET stocks, leading to further pressure on factory inventories in the third quarter.

Currently, the average inventory level in bottle chip factories continues to rise, while improvements in domestic deliveries are limited, and export congestion may not be resolved in the short term. With a noticeable increase in market supply, most contract traders choose to sell at low prices or lock in processing spread during periods of declining raw material futures. Consequently, even bottle chip factories intend to hold price firm, market price fluctuations remain restricted to low levels. Therefore, it may not be the bottle chip factories voluntarily implementing regular maintenance plans, but rather some facilities being forced to halt production when processing spread fall into a loss-making situation.

As for exports, considering the current rise in sea freight rates, most of the profits from export orders have already been taken by shipping companies. However, unlike the past two years, this year's sea freight rate increases are not exclusive to mainland China, with significant increases seen globally. This means that Chinese bottle chip companies can still find suitable bulk carriers to ensure that most orders are shipped out. While overseas clients may opt for local procurement in the short term, in the long run, neighboring regions may not fully meet their demands, they still need to purchase from Asia. Thus, the possibility of a decline in sea freight rates before the end of the year is low, and there is a higher likelihood of everyone passively accepting the current situation due to shipping companies reducing capacity artificially and raising prices. Simultaneously, although the export orders of Chinese PET bottle chip companies may experience short-term declines, the overall volume may not be lower than the same period last year, continuing to grow.

Overall, prior to futures listing, competition in the PET bottle chip industry in China was not only about scale and market share but also a test of each company's processing spread tolerance. Therefore, market prices may still undergo multiple rounds of adjustments. While inventory will eventually need to be gradually absorbed by the market, the accelerated pace of capacity expansion suggests a prolonged period for demand digestion, necessitating industry professionals to prepare for this scenario.