Insight Focus

  • Chinese PET export prices stabilise, improving S/D balance contributes to a gradual recovery in margins.
  • Crude snaps longest losing streak, oversupply concerns persist despite OPEC+ production cuts.
  • PET resin export prices show forward premium, new capacity expansion will limit upside to profitability.

Overview

  • Having eased by around USD 40/tonne at the end of the summer, Chinese PET resin export prices have settled within a tight range of USD 870-900/tonne over the last couple of months.
  • Massive capacity expansion dropped margins to historic lows in September. However, softening raw material costs and improving supply/demand balance is seeing raw material spreads steadily recover.
  • Chinese PET resin export prices currently average USD 875/tonne for Dec/Jan shipment, with a current forward premium of around USD 10-20/tonne being offered by producer for Q2 shipment, over current export prices.

Crude Pricing

  • Having rallied late summer, crude oil prices have since retreated on a consistent downward trend, including posting the longest streak of weekly declines since 2018, through November and into early December.
  • Despite additional voluntary production cuts announced by the OPEC+ cartel at the beginning of December, market sentiment continues to be dominated by ongoing oversupply concerns.

  • Downward pressure being exerted by record US production and lower global demand growth, is being offset by OPEC’s production cuts and the US’s initiative to replenish its strategic reserves.
  • According to the EIA’s latest December Short-Term Energy Outlook, crude oil prices may see upward pressure in the coming months as OPEC+ cuts hit home, and global oil inventories decline.
  • The EIA forecasts the Brent price will increase from an average of USD 78/bbl in December 2023 to an average of USD 83/bbl for all of 2024; reaching the mid-USD80/bbl range at the end of 1Q24.

  • The current consensus amongst a wider range of oil market analysts is for Brent crude oil prices to average around USD 83/bbl in 2023, with a very modest recovery through H1’24, to average USD 85/bbl in 2024.
  • Looking back at the previous May outlook report, the consensus view was closer to actual crude spots than the forward curve. And whilst analysts were perhaps overly bullish on Q4 prospects, consensus forecast were still with a good range.
  • Previous Q3’23 forecast: USD 87/bbl versus USD 87/bbl actual; Q4’23 forecast: USD 90/bbl versus USD 87/bbl actual.

PET Resin Export Price Forward Curve

  • Similarly, the PET resin raw material forward curve also shows a relatively flat outlook, with May’24 and Sep’24 contracts both at only around USD 10/tonne premium to Jan’24, indicating producers could see relatively stable costs through much of 2024.
  • Therefore, the direction of PET export pricing will hinge upon margin performance. With spot spreads against raw material costs having reached historic lows mid-Sept, a market bottom can now be observed with a steady recovery in spreads over the last month. 

  • Whilst some Chinese producers report lacklustre sales for prompt shipment, trade date for Sept and Oct shows a slightly different picture with record export levels. New monthly order intake is also around the 400k tonne level, indicating forward momentum with export levels.
  • Over-supply is the major issue dogging the market. Since April, around 3.7Mt of new capacity has come on-stream. Whilst inventory pressure has been contained through lower operating rates, margins have still cratered.
  • However, the worst may now be behind us with a steadily improving supply/demand balance projected into the new year; the greatest production excess may have already been seen in November.
  • As a result, margins are expected to continue to steadily recover with both domestic and export demand emerging out of the low season and re-entering the build-up to peak season.
  • That said an extra 2Mt of new capacity is still slated for next year and depending of timings will act to limit upside to profitability.
  • Current projections are for China FOB prices to average USD 883/tonne in Q4’23; USD 911/tonne for Q1’24; USD 928/tonne for H1’24; USD 933/tonne for full year 2024.

For research and analysis questions, please get in touch with GLamb@czarnikow.com.

Gareth Lamb

Gareth joined CZ in 2021 and is CZ’s PET analyst and recycling specialist. As well as regularly reporting on key market trends and dynamics, Gareth is also developing new research products and analytics within the PET and rPET space. Prior to joining CZ, Gareth led Wood Mackenzie’s PET research service and was Senior Consultant at IHS Markit, working within the petrochemical consulting team. Dr. Lamb graduated from the University of St Andrews with a PhD in organometallic chemistry; and has a masters of Chemistry degree from the University of Liverpool.

More from this author