BGPET chip: A brief breath – Review on Q1 performance

BGPET chip industry in China was insipid at the beginning of 2016, but it turned favorable after the Spring Festival.

Tomra November
Let’s first look at supply/demand fundamentals in BGPET chip market in China. Pressure from the supply side will surface in the second half of the year. Hereinto, one new BGPET chip plant carrying 500kt/yr capacity will be first to come on stream, with the startup time in July, and the rest with new capacities of 1.3 million tons/year will be in the Q4, which will probably be delayed. By May 2016, overall BGPET chip capacity in China has reached 8.91 million tons/year, with effective one at 7.28 million tons/year, flat from last year. However, in the first four months except January this year, effective run rates stayed high at 88-90% and were averaged at 87.4%, 3.5 percentage points higher year on year. Besides, the total output increased 99kt year on year. So far, producers have oversold their products, and most of them have low inventory, which can be explained as follows. Firstly, the weather got warm earlier than usual, and thus downstream demand climbed. Otherwise, it should be pointed out that as the rain has increased from April in southern regions, demand may be dragged down later. Secondly, BGPET chip prices once hovered around 5,700-5,900 yuan/ton, appealing greatly to downstream beverage majors and traders before and during peak season. Last but not least, inventories at producers were lower during the Spring Festival, and order intake was favorable subsequently, which allowed for high run rates at BGPET chip producers.
Now let’s turn to BGPET chip import and export in China. We only have the data in Q1, but we may find things so far this year better than last year, to a limited extent though. About import, China imports minimal amount of BGPET chips every year. Though China has imported more BGPET chips so far this year, the amount is still next to nothing in comparison with the export volume. In Q1, China imported 8kt of BGPET chips, 3kt higher year on year, with average import value at $1,800/ton, $224/ton lower than last year. And the origins of import have been still Korea, Chinese Taiwan, the US, Japan, Malaysia and Canada.
In January 2016, BGPET chip export in China weakened a bit due to extension of market situation last year. In February, BGPET chip export did not change due to the Spring Festival. However, in March, the export volume soared to 209kt, an exceptional high number. So next are the changes in BGPET chip export destinations of China. In China, the growth of BGPET chip export to surrounding countries has been maintained at stable levels. And among those export destinations, Japan has been the largest. In Q1 2016, China’s BGPET chip export volume to Japan grew by 31% year on year, which was quite considerable, because Japan is an import-dependent country. As BGPET chips from China are fairly cheap, Japanese buyers will definitely be attracted. Moreover, some Chinese producers and traders are cooperating with Japanese importers. On the flip side, Japanese buyers have always been demanding on quality, and they often have some specific requirements, which push the R&D of new BGPET chip specs somewhat.
Thanks to ASEAN Trade Agreement, the ASEAN countries are also the major destinations of BGPET chip export of China, with Indonesia and the Philippines ranking among the top five. However, we can see from the export data in Q1 2016 that the changes in total export volume to the ASEAN countries during the period were mixed, with the export volume to the Philippines flat year on year, the export volume to Indonesia enduring a decrease of 25% and the export volume to Malaysia enjoying an increase of 61%. Last March, Malaysia announced to charge anti-dumping duties on PET resins from China, South Korea and Indonesia for five years, causing a sharp decline in BGPET chip export volume to Malaysia from China. Nevertheless, this year, Malaysia lifted the anti-dumping duties on PET resins from two producers in China, and this explains the rebound of the BGPET chip export volume. However, other Chinese producers don’t have any advantages and thus the volumes from them have declined to nearly zero. In Q1 2016, China exported 12,006 tons of BGPET chips to Malaysia, a decrease of 2,374 tons compared with the year before last year and an increase of 4,554 tons year on year. Hereinto, 99% of the volumes this year came from Far Eastern Industrial (75%) and Xinyu New Material & Xingye Plastic (24%).
As tension between Russia and Ukraine is easing, China’s BGPET chip exports to the regions are recovering, though since mid 2014 when Russia and Ukraine started the war, a sharp decrease in the export volume to the regions was seen, with Ukraine missing from the list of top ten export destinations. Despite low export volume this January due to low crude prices amid sluggish global economy, China’s BGPET chip export volume to the regions in the following two months soared, bringing Russia and Ukraine back to the top ten destinations list, with Russia ranking the forth, slightly lower than the third in export volume.
Besides, export to Africa has maintained its fast growth, with South Africa and Egypt both having great demand. As to South America, export has also remained stable except the US where anti-dumping and anti-subsidy duties have been charged on PET resins from China. And the stable growth in China’s export to South Africa can be hardly broken due to the price edge.
Though export of BGPET chips in China was passable in Q1 and showed signs of increasing, risks in the future cannot be ignored, as economy so far this year has been sluggish, and crude oil prices are just in the range of $40-45/bbl. Besides, considerable capacities are scheduled to be started up, both domestically and abroad. Yet demand from beverage majors is not really favorable. This reminds us of the aggressive selling at low prices last year after the start-ups of plants in the Middle East and Europe, which may take place this year as well. However, it is anticipated that the export volume in Q2 will change little, although the high level seen in March may not occur once more.
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