Why has the market not responded this time to the continued decline in PET resin production after the holiday?

After the Spring Festival holiday, the maintenance and restart of PET bottle chip plants are proceeding simultaneously. As of last Friday (February 7), based on designed capacity of 20.93 million tons, the average operating rate of domestic PET bottle chip plants was around 74.9%, showing little change from before the Spring Festival holiday. In the future, as the maintenance of the Dragon Special Resin, Wankai, and Sinopec Yizheng (with a total of 1.3 million tons) is executed, the average operating rate of domestic PET bottle chip plants is expected to drop below 70%, falling below 70% for the first time since early 2020. However, at the same time, the restart of the 1.1 million tons of CRC Zhuhai and Jiangyin plants is anticipated, and the duration of the historically low operating rate is expected to be short-lived, with the average O/R around the end of February projected to slightly rise to 72-73%.

Note: The operating rate is calculated based on designed capacity.

In previous instances when plant O/R fell to low levels, the market prices and processing spread for PET bottle chip both saw increases. So why is it that this time prices are rising while profits remain suppressed at low levels?

Firstly, due to the impact of the Spring Festival holiday, the inventory of PET bottle chip plants has significantly rebounded after the holiday. As of last Friday, the average inventory in domestic PET bottle chip plants was slightly above 19 days, with some reportedly exceeding one month and others slightly below 10 days.

After the Spring Festival, downstream demand has not fully recovered. Some end-user customers stocked up significantly before the holiday and are not in a hurry to replenish after the price increase, while others who only supplemented a small amount of raw materials for February and March before the holiday are hesitant to follow up after the price rise, resulting in poor engagement. Overall, domestic demand is still recovering after the holiday, and trading performance is weak, making it difficult to offset supply pressure, which is one of the main reasons suppressing the rise in processing spread. According to incomplete industry statistics, beverage companies are gradually increasing their operations after the holiday, while edible oil companies are operating at an average of only 40-50% due to off-season demand. PET sheet plants show significant differentiation, with some in East China operating around 50%, while those in South and Central China, including Guangdong, Fujian, Hunan, and Hubei, are expected to gradually increase their operating rate only after the Lantern Festival due to longer holiday breaks, with some operating at 20-30%, and a few at 40%. Additionally, export demand remains acceptable, but logistics disruptions during the Spring Festival may limit export shipments in January and February.

In the short to medium term, PET bottle chip prices are likely to continue fluctuating slightly in line with raw material costs, while processing spread remains at low levels. 2wzOn one hand, the restart of previously maintained plants and the rise in inventory pressure may intensify price competition, although the newly added maintenance and restart capacity may largely offset this. On the other hand, if the recovery speed of downstream operating rates is slow and inventory reduction is hindered, sales pressure may eventually be reflected in prices. It is advisable to continue monitoring changes in PET bottle chip plant inventories; if downstream demand accelerates, it may temporarily prompt plants to shift inventory pressure more quickly, raising processing ranges. However, under a loose supply-demand situation in the medium to long term, unless there is strong upward pressure from the upstream raw material side, the rebound potential for PET bottle chip market prices is expected to remain limited.