China PET Bottle Flakes Rebounded Slightly due to the Strengthening of Crude Oil and PTA on August 4

Domestic spot market

PET bottle chips rebounded slightly and rose today, driven by the strengthening of crude oil and PTA. Low inventory supported factories to raise prices, however the discharge of new production capacity and downstream demand based purchasing restrictions on price increases led to a weak rebound in overall cost driving and light spot trading. According to the price data from SunSirs, mainstream substantial factories offer aquatic environments bottle grade items at a price of 7,400-7,600 RMB/ton; Second tier small and medium-sized factories: 7,300 to 7,350 RMB/ton. Today's factory quotations are generally stable, with small and medium-sized prices rising within 50 RMB, and there is little differentiation between price increases and decreases.

Futures market (bottle and tablet main linked PR)

The current price is 7,390 RMB/ton, an increase of 92 RMB or 1.25%; The intraday range is 7,310-7,484 RMB, with a slight opening high and fluctuating strength, with increased trading volume, following the strong rebound of PTA.

Recent direction (late July to early August)

Overall, there was a slight recovery with a bottoming out due to fluctuations: in mid to late July, the decline was weakened by the addition of new production capacity. At the end of July, the rebound in crude oil led to a rise in costs and stopped the decline. In early August, the narrow range of fluctuations was relatively strong, belonging to a cost driven weak rebound, and the supply and demand fundamentals did not enhance.

2. Core reasons to the rise and rebound

Cost side pull (main reason to today's increase)

International crude oil geopolitical disturbances have been fluctuating, and last night oil prices stopped falling and rebounded. The market is concerned about the risks of Middle East navigation, which has driven PTA and ethylene glycol (MEG) to enhance simultaneously. The cost center of PET raw materials has shifted upward, and bottle flakes have passively followed suit. PTA spot and futures prices have narrowed and rebounded, with bottle processing fees being compressed to around 590 RMB/ton in the early stage, at a comparatively low level. Factories are greater willing to raise prices and are unwilling to continue lowering prices to shipments. The maintenance of the upstream PTA unit has tightened PTA supply, limiting the downward space of PET raw materials and providing cost support to bottle chips.

Low inventory pressure, factories have no intention of actively dumping goods

As of July 31st, the inventory days of the bottle chip factory were only 8.8 days, which was basically the same as the previous month. The overall inventory was healthy and there was no crisis of accumulating inventory. The factory did not have pressure to sell goods at low prices and had strong quotation resilience.

Peak season demand as a foundation, with essential support in place

At present, it is the traditional summer peak season to beverages, bottled aquatic environments, and tea drinks. Downstream soft drink companies are operating at a high level of 80% to 90%, and daily rigid procurement continues to exist to prevent deep price drops and form a bottom support.

3. Negative factors that suppress price increases and make it difficult to rise significantly (due to the inherent weakness of the market)

Continuous increase in supply, loose supply is the biggest pressure

The newly added bottle production capacity of Fuhai, Kesen, Sanfangxiang, etc. has been put into operation one after another, and the sector operating rate has risen to 78.1% and continues to rise. The sector operating rate is expected to approach 83% in August, and the supply continues to increase, suppressing the upward space of processing fees.

The maintenance volume of equipment in July has significantly decreased, and the dual impacts of restarting old equipment and putting new production capacity into operation have led to a shift in overall supply from tight to loose, making it difficult to supply to surpass demand even during peak seasons.

Downstream replenishment is extremely cautious, and the peak season is not prosperous

The beverage factory predicts that there will be an increase in the supply of bottle chips in the later stage, and prices will not continue to rise. They insist on purchasing according to demand and receiving goods in small batches, and refuse to prepare to extensive stocking in advance. The lack of centralized replenishment will bring about an upward direction.

Downstream demand to edible oil bottles, sheets, and other items is weak, with only about 65% of oil bottle companies operating, resulting in insufficient overall diversified demand.

The domestic beverage production in June was 3.2% year-on-year, and the peak season consumption development rate was reduce than in previous years, with limited demand increment.

Weakness in exports, unable to divert excess domestic supply

In June, the export of bottle flakes was 507,000 tons, a year-on-year decrease of 7.1%. The demand to overseas packaging was flat, and the regional PET production capacity overseas increased. Domestic export orders decreased, and the source of goods originally applied to export returned to China, further exacerbating the pressure on domestic supply.

The profit margin is meager, and there is a lack of sector driven upward momentum

At present, the spot processing fee to bottle slices is only 590 RMB/ton, and the disk processing fee is 678 RMB. The profit is meager, and the factory does not have the confidence to actively raise prices; Once the raw materials fall back, the bottle slices are prone to weaken again.

4. Short term market forecast (early August)

Overall pattern: The main direction is range oscillation, with difficulty in rising or falling deeply, operating within the range of 7,300-7,650 RMB/ton.

Upper limit: Due to the discharge of new production capacity, it is difficult to processing fees to surpass 700 RMB.

Downward support: High season demand+low inventory, limited room to significant decline.