How much longer will PET bottle chip price continue to drop

As the PET bottle chip futures 2503 contract fell below 6000yuan/mt during trading, the "6000 point defense battle" for the PET bottle chip market officially commenced. However, since the listing of PET bottle chip futures, processing spread based on futures settlement price was continuously in the range of 350-400yuan/mt, significantly deviating from the trends in the spot market, which has recently approached 300yuan/mt. Currently, PET bottle chip spot trading range is mainly around 6200-6300yuan/ton ex-factory, some slightly lower at 6150-6170yuan/ton ex-factory. The price gap with the futures market has expanded to 150-300yuan/mt. Even though the ex-factory price for November delivery goods is around 6100yuan/mt, the price gap between March and May contract is only 15-20yuan/mt, indicating that PET bottle chip futures are experiencing significant overselling. This also suggest a considerable discrepancy in market judgments about this product.

After the price of PET bottle chip continuously hit new lows for the year, major downstream manufacturers have started replenishing their supplies for the end of the year and the first quarter of the next year, buying from around 6400-6450yuan/ton down to approximately 6100-6150yuan/ton ex-factory. Meanwhile, due to the ongoing decline in the price of virgin PET bottle chip, not only has it remained significantly lower than that of bright chip, but it has also begun to be surpassed by high-end specifications of recycled bottle flakes, leading to some substitutions.

Based on market performance from 2020-2021, if the near-month price of PET bottle chip also falls below 6000yuan/mt, we estimate that there could be a substantial amount of speculative demand, though the exact quantity is yet to be determined (historical data indicates that demand was over one million tons back then). It is expected that not only will there be interest from within the industry, but external players may also be attracted to build stock.

Of course, the recent decline in PET bottle chip prices is not solely due to one product or a few products, but rather originates from global concerns about economic recession and expectations of increased crude oil production. As many market participants have begun leaning towards a judgment that crude oil will drop to around $60/bbl, there may be expectations of re-evaluating the prices of all products across the entire supply chain linked to crude oil.

If we estimate from the current Brent price of $71/bbl down to $60/bbl, there is actually a downward potential of about $83/mt ($11/bbl*7.53), which is approximately 590yuan/mt, equivalent to a potential further drop of around 440yuan/mt calculated at the current PX level. This translates to about 290yuan/mt for PTA and 245-250yuan/mt for PET bottle chip, which could be one reason why both upstream and downstream futures price are rapidly decreasing.

Regarding how much longer the price of PET bottle chip can continue to fall, I believe it may take some time to confirm the judgments of most people in the market. If a bottom can be quickly found, it would be a positive sign for enterprises and the industry. However, if it maintains a bottomless model, we might witness several rounds of defense battles, until certain enterprises are forced to cease operations.