PET bottle chip: With an increase in maintenance of domestic and international facilities, what is the future trend?

Recently, there has been an increasing number of news about reduction or suspension of production at PET bottle chip factories, including new capacity like Wankai and Billion, as well as maintenance plans for December at China Resources in Changzhou and Zhuhai. Additionally, long-term shutdowns at Sinopec, Sanfame, Anyang Chemical, Baosheng and Haoyuan have resulted in an estimated daily production cut of around 15,000 tons, affecting approximately 5.5 million tons of capacity. Starting in December, the average operating rate of domestic PET bottle chip facilities is expected to drop to around 76% (based on a designed capacity of 20.03 million tons, which translates to about 83-84%), essentially aligning with the average for the year.

The current round of production reductions and suspensions in PET bottle chip facilities mainly stems from two factors. Firstly, the processing margin for PET bottle chip has long been compressed to around 500yuan per ton. When considering the cost of auxiliary materials like IPA, most factories are facing losses. Secondly, the performance of new domestic sales has been poor, leading to a rise in unsold inventory at bottle chip factories, which has climbed back above 1 million tons. Some brands have maintained inventory level at over 200,000 tons for individual plant.

Note: The inventory figures for factories in November are mid-month data, while total inventory is an estimate.

In addition, the current demand in the PET bottle chip market has shown some degree of early release. Many large domestic and international end-user companies completed their annual replenishment tasks at low prices during the third quarter, and some have even preemptively stocked up for orders in the first and second quarters of next year, with exports peaking at over 700,000 tons in September. This large-scale forward purchasing has led to a noticeable slowdown in replenishment efforts from major end-users after the National Day holiday, causing total inventory levels to surge dramatically by the end of October, nearing a high of 1.9 million tons. Given the varying inventory pressures faced by different bottle chip factories, the price gap between various brands significantly widened from late October to early November, reaching a level of 200yuan/mt. By the end of 2024, it is expected that total inventory will rise to over 2.5 million tons, which is approximately double the average consumption over the previous ten months.

From the perspective of overseas market, the annual maintenance plans for PET bottle chip facilities in Europe and the United States are gradually increasing in the fourth quarter, coinciding with announcements of some new capacity being introduced. Specifically, the UK-based Alpek company's PET bottle chip facility, with an annual capacity of 150,000 tons, faced a force majeure shutdown around the end of October, and the specific restart time is currently unclear. Meanwhile, the 360,000-ton bottle chip facility of Germany's Equipolymers and the 260,000-ton facility of Spain's Novapet both entered their annual maintenance cycle in November. Additionally, it is noteworthy that Japan's only PET bottle chip producer, Mitsui Chemicals, has announced that its plant in the country will permanently close since September 2024, which will undoubtedly have a profound impact on the global supply landscape. Regarding recent new facility developments, Egypt is expected to launch a PET bottle chip production line with an annual capacity of 180,000 tons in October 2024, with a designed daily output of 600 tons. However, given that this company primarily focuses on film production, it is speculated that the new facility may lean more towards film production in the future. On the other hand, Turkey's SASA company plans to put into operation a new PET bottle chip facility with an annual capacity of 300,000 tons in January 2025, which will undoubtedly pose challenges for Chinese bottle chip companies in terms of exports. Of course, in the long run, Chinese bottle chip enterprises may still leverage their cost advantages to enter the Middle Eastern market through shifts in trade flows, while Turkish supplies may find more demand in Africa and the EU.

In reality, although bottle chip factories still hold a certain degree of optimism regarding export shipments in the later stages, the inventory levels circulating within factories and in the market remain relatively high. Given that there are plans for new capacity to be introduced to the market in December, it is believed that the current wave of production cuts and suspensions may struggle to fundamentally reverse the current market predicament, and it is likely that further reduction or suspension plans will need to be implemented to address market challenges in the future.