China PET bottle chip total stock level to approach 3 million tons at the end of the year ?

Recently, the domestic spot market for PET bottle chip has been quite flat, with transactions described as stagnant. Simultaneously, the processing spread has dropped below 400yuan/mt, entering a historically low range. However, there is very little news about maintenance at PET bottle chip factories. Why is this?

There are two main reasons for this. Firstly, as we enter the summer season, both domestic and overseas shipments of PET bottle chip are substantial. Especially this second quarter, there has been a significant increase in shipping costs, causing delays in export orders for various factories. This results in a need for increased shipments to be arranged in the third quarter. Unless there is a significant increase in inventory pressure or specific maintenance schedules, it may not be worth it for factories to reduce or stop production at this time. Secondly, after years of development, the top four PET bottle chip factories hold a market share of over 80%, indicating a high level of concentration. Any halt or reduction in production from one of these factories will affect their share in the market. Moreover, as domestic demand gradually weakens in the second half of the year, it becomes challenging to determine the optimal timing for restarting production.

Currently, major PET bottle chip factories are still operating at low processing spread, mainly driving industry reshuffle and survival of the fittest. While there are some maintenance plans for smaller facilities, their impact on the market is limited. Smaller factories have lower market circulation and higher substitutability, hence their maintenance updates in the market is largely covered by other market news. Therefore, in anticipation of order shipments in summer and safeguarding market shares, each PET bottle chip factory is still engaged in a psychological game; most are hesitant to schedule maintenance for their facilities at this time. However, with new capacities gradually coming online later on, the pressure on the market's supply side may continue to increase, possibly resulting in more announcements of maintenance plans.

Preliminary statistics indicate that starting from late May, PET bottle chip factory inventories have surpassed a million tons, with an estimated overall inventory exceeding two million tons by the end of June. Apart from the inventory increase due to poor domestic orders in PET bottle chip factories, the remaining surplus is circulating among traders or small and medium-sized enterprises engaged in trade, and some are caused by delayed exports. Looking at the addition of new orders and shipments for domestic and overseas sales, excluding anomalies in data in February due to the Chinese New Year holiday, the speed of factory shipments from January to June has been slower than initially expected. Most new orders are settled within the earlier low-price range, with fewer orders nailed at above 7100yuan/mt. Additionally, due to limited market fluctuations, downstream factories exhibit a strong tendency to observe, resulting in weak replenishment or procurement motivation among distributors and instances of warehouse overflow in some external storage areas.

Given this situation, it is reasonable to speculate that under continued loss expectations, new capacities initially scheduled to come up in the third quarter may likely be delayed. If some major factory facilities undergo maintenance during this period and the issue of export shipment delays gradually gets resolved later on, the oversupply situation in the PET bottle chip industry may improve, thereby altering the slightly pessimistic market expectations for the third quarter. Of course, if factories continue to operate at high rates and there are no delays in new capacities, the total inventory may witness a breakthrough nearing three million tons by the end of the year.