China PET bottle chip plants to intensively shut down ?

This morning, a piece of news went viral on social media. The message stated: "PET bottle chip plants are starting to reduce production, YS-25%, Wankai and China Resources-600,000 tons, Yizheng-250,000 tons. Starting from July."

Upon initial glance, we pondered if PET bottle chip factories are finally starting to shut down for price stabilization. However, upon further investigation, it became apparent that while there is some truth to this message, there are also some misunderstandings.

1. The news about Yisheng reducing production by 25% might primarily stem from a notification sent by the factory to contract customers, indicating "In July and August, the Hainan plant contract will reduce by 25%." Therefore, fundamentally speaking, Yisheng factory is not reducing production by 25%, but rather decreasing the contracted quantity for the Hainan factory. Additionally, according to CCFGroup understanding, there is a maintenance plan of 750,000 tons for Yisheng's Hainan factory in the later period.

2. Wankai's 650,000-ton PET bottle chip unit in Zhejiang is set to undergo maintenance starting in mid-July, with an anticipated duration of around one and a half months.

3. Sinopec Yizheng's PET bottle chip unit has currently converted 150,000 tons to produce PET fiber chip, and there is no final decision yet on whether the 250,000-ton unit will be shut down. Given that the performance of the other non-converted units is still acceptable, the most ideal scenario may not be to consider shutdown but rather to convert to PET fiber chip production.

4. The news of China Resources' 600,000-ton unit shutdown mainly originates from maintenance issues with components at the Jiangyin factory. The latest update is that the 600,000-ton PET bottle chip unit at Jiangyin factory has not yet made a final decision on whether it will undergo maintenance. We estimate that even if a shutdown occurs, it will be brief.

If these unit maintenance periods coincide later on, the highest impact on the PET bottle chip units would be around a 12-percentage point decrease in O/R (estimated on a 18.48 million-ton capacity base), reducing from the current 85% to around 73%. Additionally, it would affect the overall polymerization rate by around 2.7 percentage points. However, these are all estimations based on the assumption that new capacity has not yet been launched and all unit shutdowns are concentrated within a certain timeframe.

Looking ahead, there are actually quite a few new capacity expansion plans. Yisheng Dalian's final 350,000-ton PET bottle chip unit was recently put into operation and Sanfame 750,000 tons is planned to launch in mid-late July. Sichuan Hanjiang 300,000-ton capacity is set to restart at the end of June, and the remaining 300,000 tons of new capacity is to launch in mid-July. Consequently, there may be an additional 1.5-1.8 million tons of capacity entering the market later on, essentially offsetting the shutdown capacity mentioned above.

Hence, if the new capacity launch periods clash with the unit maintenance periods, the positive impact on the PET bottle chip supply side might only be short lived. Of course, if PET bottle chip factories proactively shut down to alleviate the current severe oversupply situation, this would also serve as an exemplary instance of industry rational market rescue.