PET Industry Market Dynamics: Production Cuts Cushion Price Declines

Macroeconomic and Energy Market Update

In the first half of 2024, China's economy showed growth potential with a 3.5% rise in industrial profits, despite a slight decline in state-owned enterprise profits. The central bank's policy adjustments and long-term government bonds aim to stimulate the economy. Globally, the European Central Bank may lower interest rates further, the U.S. economy has surpassed growth expectations, though consumer confidence has fallen. Trump's comments on Bitcoin may impact future investment trends.

In the energy market, Russia continues to maintain stable diesel exports, and U.S. strategic petroleum reserve inventories have reached a high, indicating stable supply. However, fluctuations in crude oil prices and changing market expectations may affect energy market stability.

PET Raw Materials

Last week, polyester raw material prices were volatile after a significant drop. Crude oil prices remained weak, PX prices fell but slightly rebounded, PTA continued to weaken, and MEG prices dropped then recovered.

Crude Oil

Crude oil prices have declined for the third consecutive week, primarily due to weak demand from China, despite a significant reduction in U.S. inventories. While there are signs of easing tensions in the Middle East, recent rocket attacks by Hezbollah on Israel could exacerbate regional conflicts.

As of last Friday (26/7), Brent crude oil prices had fallen to around $81 per barrel, a notable decrease from the $85 per barrel level a week earlier.

PTA

PTA futures continued their recent decline, dropping an additional 1.5% due to lower upstream costs. Major suppliers faced both planned and unplanned shutdowns last week, which reduced supply pressure and led to a slight decrease in PTA production. Downstream polyester plants adjusted their production levels, with capacity rising to 86.3% by midweek, improving the PTA supply-demand balance.

In terms of spot basis, the PTA spot basis at major Chinese ports remained stable in the first half of the week. However, it declined in the latter half due to typhoon-related disruptions affecting shipping in South China, though the impact at major ports was limited. As PTA prices approach cost levels, bottom support is gradually emerging, with short-term price movements expected to follow upstream cost trends.

Ethylene Glycol

Ethylene glycol prices rebounded slightly last week after a period of decline, supported by increased purchases from polyester plants. Inventory at Chinese major ports fell, with East China and Ningbo ports seeing reductions of 12,000 tons and 11,000 tons, respectively, easing inventory pressure. Production cuts and upcoming maintenance, along with reduced operating rates at coal-based plants in China, are expected to limit supply. 

Overall, the ethylene glycol market remains in a positive fundamental state, with prices expected to fluctuate within a range due to balanced supply and demand dynamics.

PET Bottle Grade Market Update

Weak crude oil prices have put pressure on PTA and MEG futures. Over the past week, Chinese PET resin export prices have continued to decline, falling by $5 per ton to an average of $900 per ton last Friday. Despite this drop, production cuts in China have provided some support to export prices, limiting the decrease in PET bottle grade which continue to follow raw material trends.

Export conditions for Chinese PET bottle grade remain relatively favorable with good shipping volumes. However, this is largely due to inventory backlog caused by previous shipping delays. Additionally, Asian PET resin export prices are facing pressure as the market enters the off-season. The forward curve for raw material costs over the next 12 months remains flat.

Summary and Outlook 

Although Chinese PET resin export prices have declined recently, production cuts have helped maintain profit margins and price differentials. With delivery concentrated in the third and fourth quarters' off-season, buyers may become more cautious, increasing sales pressure on producers. 

High shipping costs and limited supply continue to impact export demand. Despite signs of peak container rates, significant improvements in demand may be unlikely. 

Whether production cuts and inventory management can offset demand declines and sustain PET profit margins and price stability remains a key focus. 

In the short term, PET bottle grade manufacturers are expected to maintain processing margins amidst market fluctuations, with attention on production adjustments and shipping cost impacts.