How much further can the O/R of PET bottle chip plants decline in the fourth quarter?
Since the fourth quarter, PET bottle chip downstream market has gradually entered the slack season, yet the O/R at bottle chip factories remains consistently high. Currently, based on a designed capacity of 20.03 million tons, domestic PET bottle chip plants are operating at an average rate of around 89%, which is an increase of 11-12 percentage points from the low point in August-September and nearly 20 percentage points higher than that of July where the concentrated production cuts were seen. So, as we approach the end of the year, is there still room for the O/R of PET bottle chip plants to decline?
Firstly, from the perspective of sales and subsequent shipments, there is significant downward pressure on PET bottle chip O/R in the future. According to CCFGroup incomplete statistics on the domestic and foreign orders intake in October, the domestic sales volume is around 454,000 tons, while the orders from overseas are about 450,000 tons, totaling approximately 900,000 tons. However, the monthly production of PET bottle chip is around 1.49 million tons, which means that, excluding sold orders, the surplus could reach 600,000 tons, roughly half of the monthly production. Considering some prior sales quantities, the estimated domestic demand for October is around 630,000 tons, with estimated export shipments nearing 500,000 tons. Nonetheless, even in this scenario, the monthly surplus would still be close to 400,000 tons. If there are no new production cut plans in the future, the supply side of PET bottle chip may further exceed demand, exerting pressure on the processing margins, and by the fourth quarter, inventories may accumulate close to 1 million tons.
Secondly, recently, PET bottle chip factories have gradually shifted their sales pressure downwards through means such as urging pickups and promotions. According to the latest information, although the inventory at PET bottle chip factories has been accumulation, much of the pressure is now being transferred to traders, especially since some October contracts could not be fulfilled, which has started to exert pressure on the November market transactions. This is evident from the actions of some large bottle chip manufacturers urging pickups and certain traders continuing to offload stock. As the annual maintenance of downstream end-user plants proceeds, the shipping speed from bottle chip factories will slow down, and the pressure for inventory digestion may further intensify. When end-user companies gradually restart their operations, if prices drop again to annual lows, it will be worth observing whether this triggers a concentrated replenishment effort to hasten the digestion of total inventories.
In December, China Resources will begin implementing a maintenance plan for 1.1 million tons of bottle chip capacity, which is expected to impact the O/R of PET bottle chip plants by about 5-6 percentage points. During that month, Sinopec Yizheng plans to start production with an input of 500,000 tons, but as the impact of new installation on the supply side remains limited in the short term, it will not affect overall bottle chip operating rates at this time. Furthermore, although most bottle chip factories are currently in a stage of inventory accumulation, they have not yet reached warehouse limits, leaving some room. At the same time, due to polyester raw materials remaining near their annual lows, major bottle chip manufacturers are temporarily under limited pressure regarding processing fees. Overall, we estimate that PET bottle chip operating rate in November will likely remain around 88-89% (based on 20.03 million tons), while the operating rate in December to early January is expected to slightly dip to around 82-83%. Of course, if some small to medium-sized plants face production cuts due to losses during this period, we foresee a potential downward adjustment of 1-2 percentage points. However, at this time, the likelihood of large installations halting production is relatively low.
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