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Insight | Time:Aug 9 2017 6:39PM
PET bottle chip downstream roundup in H1 2017
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China PET bottle chip demand totaled 2.45 million tons in the first 6 months of 2017, y-o-y rising 9.7%, which is significantly better than past 2 years. Soft drink section contributes a dominant share by 80%. According to NBS (National Bureau of Statistics), China soft drink output amounted to 97.98 mln tons in H1 2017, with packaged drinking water possessing over 50%. Demand from edible oil and PET sheet sections maintained steady and relative smaller y-o-y growth, generally at 9-11%. Besides, export market showed sign of revival in Q2 after Q1’s drastic decline. According to Customs statistics, China PET resin exports exceeded 1.07 million tons, with annual growth rate recovering to 0.19%. Supply in domestic market is tightening as delivery appeared intensive early Q3 buoyed by seasonal impact. Overall, PET bottle chip fundamental fares well in the first half of 2017. 

Look at downstream purchasing cycle first. In Q1, downstream purchases primarily emerged in mid-Jan, ahead of New Year holiday and then mid-late Mar. In Q2, good order intake and smooth delivery soon digested the factory stock, which has led to tangible delivery tightness within short term, though PET price stagnated after rushing up high and retreating. Besides, Japan’s potential and now affirmative ADD also boosted players’ stock build intention, which in turn triggered sharp growth in China’s exports. Finally, the continuous extreme weather nationwide highlighted the rigid demand for beverage, hence beverage producers required shorter PET delivery cycle and covered short intensively, further slashing PET resin factory stock level.

In perspective of regional consumption, East China and south China remains the major PET consumption areas, bolstered by the dense population, vast rigid demand basis as well as relatively developed economy. Long lasting scorching weather this year has rapidly pushed up beverage O/R. East China market’s PET consumption ratio registered uptick, ending its 2-year dull performance, and other regions’ consumption ratio is also driven up, except for northeast China where summer arrives late, and the massive regional temperature decline also adds to impact part of beverage demand.

Since beverage demand for PET resin possesses a large proportion rate in China, a brief review is made below:
In terms of beverage operating status, Q1 beverage O/R appeared to decline first and then rise, mainly on Spring Festival holiday impact. In early Q2, downstream purchases slowed as PET resin price moved higher, as a result, beverage O/R declined. Late Q2, running rate of beverage industry ramped up rapidly, fueled by ballooning rigid demand for packaged drinking water under persistent extreme weather. In all, soft drink output y-o-y growth recovered somewhat in H1 2017 and PET rigid demand increase was moderate.

Figure 1. Soft drink operating rate in each province in Jan-Jun 2016-2017
Province Jan-Jun 2016 Jan-Jun 2017 Change
Beijing 58% 63% 5%
Tianjin 73% 74% 1%
Hebei 81% 84% 3%
Shanxi 56% 55% -1%
Inner Mongolia 36% 36% 0%
Liaoning 50% 44% -6%
Jilin 65% 60% -5%
Heilongjiang 46% 49% 3%
Shanghai 62% 63% 1%
Jiangsu 62% 72% 10%
Zhejiang 69% 70% 1%
Anhui 61% 67% 6%
Fujian 78% 83% 5%
Jiangxi 69% 70% 1%
Shandong 61% 72% 11%
Henan 92% 83% -9%
Hubei 86% 89% 3%
Hunan 44% 48% 4%
Guangdong 72% 71% -1%
Guangxi 52% 59% 7%
Hainan 62% 51% -11%
Chongqing 79% 71% -8%
Sichuan 81% 86% 5%
Guizhou 76% 82% 6%
Yunnan 90% 90% 0%
Xizang 63% 19% -44%
Shaanxi 70% 75% 5%
Gansu 57% 57% 0%
Qinghai 49% 65% 16%
Ningxia 63% 54% -9%
Xingjiang 68% 74% 6%

Check on regional operating conditions. Beverage O/R in E. China maintained range bound in Q1, while rebounded sharply in Q2 as weather turned hotter. Output expansion for packaged drinking water is particularly remarkable. S. China market fared well and output expansion ranked among top list. N.E. China market typically warms up after Apr as temperature rallies then, however, the unexpected regional temperature fall in Q2 has dragged part of the demand. N. China and S.W. China have drawn a good pic in recent years, with production ratio growing somewhat. But N.W. China’s production was subdued by slower local demand and beverage O/R also inched lower.

According to CCFGroup statistics, PET resin consumption by China soft drink plants is assessed at 1.95-1.96 million tons in Jan-Jun 2017, up 10% from a year earlier. Reviving exports and good domestic demand growth in Q2 helped producers destock quickly. Low stock and high O/R may sustain in the long run.

PET bottle chip market fundamental is tightly balanced in H1 2017. China soft drink output maintains uptick, rendering strong support for PET, and PET domestic demand is expected to grow 6-7% in 2017. Since some PET capacity delays to launch in Q4 or H1 2018, China market may not feel much supply pressure shortly, but export market will face big challenge with Indonesia and Japan to impose ADD on Chinese PET resin.

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