PET bottle chip processing spread squeezed to extreme low, will the industry run slump further ?

Recently, the processing spread for PET bottle chip have once again fallen to a low range. Market transactions are primarily driven by traders taking profits. Though factories raised PET prices following up raw material trend, there are not many actual market demand. In this context of continued inventory accumulation, will PET bottle chip factories implement more production cuts before the Spring Festival?

Over the past five years, PET bottle chip factories have generally resorted to concentrated production cuts to reduce market supply and improve profitability during prolonged periods of losses. For example, this occurred in September-October 2020, July 2022, the fourth quarter of 2023, and the third quarter of 2024. However, as market supply has significantly increased, the effects of O/R cut on supply and demand are gradually diminishing, especially when only several small-capacity units are shut down while larger plants have limited changes. The gradual reduction in O/R provides little assistance to market prices.

In the fourth quarter of 2024, although PET bottle chip average O/R has fallen below 80% again, the effect is clearly not as pronounced compared to the drop to around 70% in the third quarter. Meanwhile, due to consistently high O/R in the fourth quarter and weakening demand, the total inventory of PET bottle chip has accumulated at an average rate of 300,000 tons per month, leading to nearly one million tons of inventory accumulation in just three months. Of course, PET bottle chip factories have been alleviating some of their inventory pressure by accelerating exports, shutting down certain units, and urging traders to take delivery of contracted goods. Thus, while the total inventory continues to rise, the inventory and sales pressure on PET bottle chip factories has not reached the market's expectations. Consequently, with factories slowly reducing production while traders are eager to offload goods, market discounts are prevalent, and the processing spread for PET bottle chip has once again been compressed to below 350yuan/mt. However, with the rise in polyester raw material futures at the beginning of the year, traders who previously stocked up at low prices can still "redeem" some profit margins, though it is difficult to fully offset the losses since the third quarter. Additionally, many traders still have unsold contracted goods from January to February, leading to considerable pressure in the future. Pay attention to the progress of the March contract delivery.

Furthermore, although PET bottle chip factories are experiencing continuous pressure on their profit margins, many large orders were locked in at lower raw material price levels earlier. Additionally, exports are influenced by exchange rate fluctuations; for instance, some fourth-quarter orders locked in at certain exchange rates will also bring about some profit increases. While the sales volume for PET bottle chip factories has not significantly increased when raw material price stood high, it is unlikely that they will further reduce O/R in the short term. On the contrary, with the subsequent restart of the CRC Changzhou facility and the launch of new units at Sinopec Yizheng and Sanfame, supply of PET bottle chip market is expected to continue increasing before the Spring Festival, leading to a sustained trend of inventory accumulation.

After the Spring Festival, companies like Dragon Special Resin and Zhejiang Wankai have maintenance plans, while CRC Zhuhai will delay its restart until after the Spring Festival. However, the largest bottle chip factory in China, Yisheng, has not yet announced any clear plans for production cuts. We can only infer a possible reduction from its PTA maintenance plans. Based on current situation, the average O/R for PET bottle chip industry in January is expected to remain at 81-82% (based on a designed capacity of 20.43 million tons), while February is expected to be around 80-81% (based on a designed capacity of 20.93 million tons). Overall, unless there are announcements of major unit maintenance, it is unlikely that the PET bottle chip industry run will see a significant decline.