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Insight | Time:Jul 13 2017 9:24AM
Reasons behind high operating rate and low inventory of PET bottle chip
 
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Operating rate of China’s domestic PET bottle chip units soared while the inventory moved up but fluctuated in limited room since Q2 2017. Why?

According to statistics, inventory of PET bottle chip plants inched up in the first half of 2017, mainly due to additional supply from new units. Exports of PET bottle chip slid obviously in Q1 and export orders for Q2 changed little compared with that in 2016, not showing signs of large increase.



Where the consumption goes?
According to comparison of downstream demand, consumption of PET bottle chip in the first half of 2017 increased by around 120kt, mainly from beverage plants, compared with that in the same period of 2016. Therefore, the rise of ending inventory is driven by the slide of exports.


Why does operating rate of PET bottle chip plants stay high for long?
Firstly, PET bottle chip is destocked completely. The orders previously accumulated are delivered intensively in summer when demand from downstream beverage plants is strong. Meanwhile, the export volume to Japan increased especially after results of Japan’s anti-dumping investigation released. Thus supplies of PET bottle chip tend tight since mid-Jun. However, for those plants without accumulated orders, the rising price poses a curb on sales. With the lull season coming, only downstream rigid demand cannot support the high operating rate later.

Secondly, capacity of PET bottle chip declines due to elimination of some capacity in recent two years. Wankai’s 550kt/yr PET bottle chip unit was put into production until Q2, bringing the total capacity to 8.11 million mt/yr. Yisheng Hainan relocated its 250kt/yr unit, leading to higher operating rate.

Conclusion and outlook
With new capacity into production in Q3, monthly supply is predicted to increase 70-80kt, of which more appears in end-Q3 and Q4. With slack season coming later, some PET bottle chip plants may arrange annual turnaround so the increase of supplies will slow down. On the whole, low inventory and high operating rate will extend and the price is projected to fluctuate slightly at high level.
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