PET Bottle Grade Production: Reaching a Load Bottom? Gradual Recovery Expected

After significant reductions and shutdowns in July, China's PET bottle grade production facilities have experienced improved processing fees. With downstream terminals and traders actively restocking, transactions have increased, leading to a slight drop in social inventory by late July and early August. Despite a decline in upstream raw material futures prices, which reduced spot prices for PET bottle grade, processing margins in China have rebounded to approximately 550 RMB/ton, while export margins have returned to $100.

Historically, China's average PET bottle grade production load hit its second-lowest point since 2020 by late July 2024, reflecting ongoing supply-demand challenges. Excluding the exceptional years of 2020-2022, both 2023 and 2024 have shown similar declines in load rates. In these years, a surge in supply and rapid compression of processing margins led to a 25-30% short-term reduction in load rates to maintain or improve profitability.

Has the 2024 PET Bottle Grade Production Capacity Reached Its Lowest Point?

It is likely that 2024 has already seen the year's minimum load rate of around 70%. With new capacity coming online and scheduled maintenance, supply is expected to improve gradually:

1. New Capacity: An estimated 2.5 million tons of new capacity is expected to be introduced in Q3. While some plans may be delayed until September, the overall supply increase is expected to be substantial.

2. Facility Restarts: Further production cuts or shutdowns appear limited. Only two manufacturers have confirmed maintenance shutdowns for September. Wankai’s Haining plant is anticipated to restart as planned after maintenance, adding capacity that will exceed the reductions from shutdowns.

3. PET Futures: With the upcoming launch of PET futures, some market participants may preemptively secure eligible delivery grades in preparation for futures trading.

However, a significant increase in PET bottle grade production load in August and September seems unlikely. Processing margins have been suppressed below 600 RMB/ton for an extended period, which has strained small and medium-sized enterprises, making shutdowns a more viable option. Additionally, short-term fluctuations in export exchange rates have reduced the risk tolerance of new exporters, who are likely to maintain current operations to protect market share rather than expand production aggressively.

A clear operational divide exists between the top four producers and other factories. The top four are expanding their market share in key regions with varied strategies: some focus on securing processing fees to ensure sales, while others are deepening their presence in international markets to avoid intense competition in China and reduce costs.

Outlook

Overall, PET bottle grade manufacturers in China are expected to maintain an average production load of around 75% in the near term. Recent data shows a gradual increase to about 78%, with the load rate expected to be revised up to 87% by August 16, prompting adjustments to the August forecast. September may see a brief rise above 75%, but surpassing 80% appears unlikely. New capacity implementation may be postponed until October or later, potentially pushing the average load above 80%. Future increases will depend on changes in facility operations and market conditions.