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Insight | Time:Jan 5 2017 1:25PM
Has re-PET lost its upside momentum
 
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Domestic re-PET price continued to hike since the fourth quarter of 2016, particularly in December. It surged by 1300yuan/mt or 30% in the fourth quarter and 700-800yuan/mt or 15% in December on serious supply shortage.



Positive commodity market

Domestic bulk commodity price significantly rose on the accelerated depreciation of RMB from end-September. Wenhua CCI surged by 27% since mid-September till mid-December, driving up bullish market sentiment and speculation.



Rising crude oil and polyester products price



OPEC’s agreed voice to cut oil production in early December bolstered the crude oil price to go up which already enjoyed a hike in November. And propelled by rising oil price, virgin polyester products also increased with PET chip and PET bottle chips hiking by around 15% till December 20.

Strengthened environmental protection regulations in Guangdong and Hebei restrained re-PET supply in the short run

China exerted great efforts to tackle environmental issues in 2016. Apart from the intensified regulations in the first half of 2016, the air pollution campaign in end-November in Hebei, and Central Environmental Protection Inspectorate groups’ efforts in Guangdong, Hubei, Sichuan and Shanghai in December caused local recycled bottle flake cleaning and processing plants to cut production or even shut down, greatly reducing the supply of re-PET which is already at it low season. To mention that the shortened supply in Guangdong was especially a great concern. Guangdong has always served as an important re-PET supply market in Winter when in North China, re-PET sources supply reduced because of the cold weather, yet this year, more than providing sources for other places, even some local recycled polyester fiber plants could not obtain the feedstock. Thus re-PET supply was rather tightened this year.

Besides, continued price reduction in recent years and the low or even some-time negative cash flow of re-PET led to the decrease of employment in re-PET industry, thus lowering the recovery rate of PET and resulting in supply tightness.



What’s more, many re-PET plants’ reluctance to sell during the price hike exacerbated the supply tightness and further drove up the price. Also, upstream and downstream plants acted cautiously and kept their inventory at a low level given the continued price decrease in recent years so that, when the price went up, downstream plants had to revise up their purchasing price to obtain the sources and in turn further propelled the price hike.

With the upcoming Spring Festival and recent price hike, market players were quite confused about whether restocking at this very moment or later.

Supply:

Domestic re-PET supply is still at its low season and hence market sources may not expand in the short run. However, re-PET from Guangdong, a driving force for recent price hike, is expected to emerge in the market as local environmental movement was somewhat eased with the completion of the inspection of the fourth group of Central Environmental Protection Inspectorate. And some re-PET cleaning plants has intended to resume production and is expected to revise up their operating rate considering the attractive cash flow of 800yuan/mt.

On the other hand, imports of waste, parings and scrap of PET in Jan-Nov of 2016 totaled 2.36 million mt (2.26 million mt under the HS Code of 39159010 and 0.1 million mt under the HS Code of 39076090), while the total approved volume is at 3.226 million mt. And according to our research, many enterprises actively moved to import sources and tried their best to use the official document in end-2016 so that the approved import volume may be reached, these all indicates that re-PET imports in December may hit a yearly high level in 2016. Also, enterprises showed quite relived on the new official approval to import in 2017.

Demand:

Recycled polyester fiber plants operating rate trends downward on the upcoming Spring Festival, which means the rigid demand for re-PET gradually declines. And of course, plants may still need to restock as most of them have a low feedstock inventory. At the same time, in the medium term, medium-grade re-PSF and re-PFY price may follow the trend of virgin polyester products and may not decrease down in the short run. However, HC re-PSF price may be pressed to decrease amid thin consumption after the Spring Festival, and hence be restrained to accept re-PET price hike.

Market players shows increasing interest in the higher operating rate of shale oil in the US with the price hike of crude oil. At the same time, downstream plants still need time to accept the continued polyester feedstock price rise. In recent days, polyester feedstock price stablized and showed signs of declining. 

In a word, re-PET supply may be somewhat eased in the short run and the price may stabilize on the whole. Some suppliers raising offers to high level earlier may offer some discounts to encourage deals, but such discount may be limited backed by low inventory and good profits of recycled polyester fiber plants.
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