PET Chip Market Takes on a New Pattern

By Dang Yongzhi, North China Branch of Sinopec Chemical Commercial Holding Co., Ltd.

Capacity increases and the means of production becomes adaptable.

The capacity to make poly(ethylene terephthalate) (PET) in China has increased rapidly since 2010. Currently, it is 42.9 million t/a, up 62.8% (16.55 million t/a) from 2009. In the second half of 2012, newly constructed PET production lines started coming on line one after another, leading to obvious overcapacity and declining profitability of domestic PET producers.
The capacity for PET chips, an intermediate product of PET production, is increasing rapidly along with PET resin capacity. Since the second half of 2012, producers of PET chips have been suffering losses. The changing capacity, from 2009 to 2013, is shown in Table 1.
Most PET production units are equipped with melt-spinning facilities. However, the melt-spinning facilities cannot consume all the PET resin that is produced. The excess PET resin is used to produce PET chips, and thus the capacity for PET chips of these units is called “excess capacity.” For most production units, the proportion of PET resin used to produce PET chips is adjustable from 5% to 60%. Some PET production units are not equipped with melt-spinning facilities, so all the PET resin they produce is used to produce PET chips. The capacity for PET chips of these units is called “major capacity”.
As can be seen in Table 1, in recent years, PET capacity has increased rapidly, but its utilization has been decreasing. Domestic capacity will reach 10 million t/a by the end of 2013, up 51.5% (3.4 million t/a) from 2009 and accounting for about 23% of the total capacity for PET resin in China. Of all the 10 million t/a capacity, “major capacity” is about 4.7 million t/a, and the rest is “excess capacity.” Under the condition that melt-spinning units do not stop production, the minimum capacity for PET chips is about 1.8 million t/a.  

Table 1   PET chips capacity in China, 2009 to 2013 (kt/a)

Year    2009    2010    2011    2012    2013 (estimated)
Capacity*                    6 600    7 100    8 250    9 300    10 000
Utilization                     80%     86%      90%      75%     76%
YOY increase of capacity    5.0%    7.6%    16.2%    12.7%    7.5%


Production is regionally concentrated and private enterprises dominate.

As of the end of 2012, the combined capacity for making PET chips in the three leading locales – Jiangsu, Zhejiang and Shanghai – is 7.9 million t/a, accounting for 85% of the domestic total, up ten percentage points from that of 2005. The capacity in Guangdong and Fujian provinces accounts for less than 10%. All new production units built in 2013 are located in Jiangsu, Zhejiang and Fujian provinces. The production of PET chips will become more concentrated in the future.
Before 2005, most PET chips products were made by state-owned enterprises. However, today, the producers are either shut down or have been forced to reduce their production scale. Currently, the only three state-owned PET chips producers are Sinopec, PetroChina and Shanghai Lianji Chemical Fiber Co., Ltd. Private PET chips producers, including Zhejiang Hengyi Group and Jiangsu Hengli Group, own over 75% of the capacity in China.

Producers extend industrial chain for efficient growth.

With the enormous capacity expansion in recent years, some producers of PET chips began to extent their business to more profitable upstream industries like PTA (purified terephthalic acid) and PX (p-xylene), as well as downstream industries like draw-texturing yarn, weaving, printing and dyeing. Currently, eight producers have PET resin capacity exceeding 1 million t/a, of which three producers have a capacity of at least 2 million t/a. Large PET producers like Jiangsu Hengli Group and Jiangsu Sanfangxiang Industry Co., Ltd. have already achieved the integration of upstream and downstream industries. These large producers are more competitive, due to the advanced technologies used in their new production facilities and the high quality of their products.               

In addition, many existing downstream spinning and weaving companies began to construct PET production units and extend their industrial chain upward. Some of them even became major providers of PET chips.

Demand growth slows and output follows.

The growth of demand for PET chips in China has been slowed down by a downturn in the PET fiber (polyester) market. As can be seen in Table 1, the estimated output of PET chips in 2013 was 7.6 million tons in China, up 4.8% year-on-year. The utilization rate of production facilities in 2013 was 76%, slightly higher than in 2012 but much lower than before 2011.

Table 2   Demand for PET chips from direct-consuming sectors, 2011 to 2013 (kt)

Industries    2011    2012    2013 (Estimated)
    Consumption    Ratio/%    Consumption    Ratio/%    Consumption    Ratio/%
Total consumption        6 256.7     100        7 521.4     100     7 778.9   100
Consumer-grade fiber    4 442.7      71.01        5 668.3      75.36     5 798.9    74.55
Industrial-grade fiber      957.5      15.30          798.3      10.62       820.0    10.54
PET film                  856.5      13.69        1 054.8      14.02     1 160.0    14.91

Note: Consumption data include processing volume of PET chips.

Downstream markets are stable.

According to their application fields, PET chips can be divided into three categories, consumer-fiber grade (mainly used in apparel and home furnishings) and industrial-fiber grade (mainly used in tyre reinforcements, fabrics for conveyor belts, safety belts, coated fabrics and plastic reinforcements) and film grade, with a consumption ratio of around 73:14:13. In the next few years, the growth of demand for PET chips from the production of both the consumer-grade fiber and industrial-grade fiber will be decelerated due to the decrease of investment in downstream melt-spinning industry. Although the capacity for PET film will continue to increase, the demand for film grade PET chips can hardly increase significantly, due to the overcapacity and low utilization rate of production units.
As shown in Table 2, in recent years, the ratio of PET chips used for the production of consumer-grade fiber has increased; the ratio of PET chips used for the production of industrial-grade fiber has decreased; the consumption of film grade PET chips increased slightly. In 2013, the consumption of PET chips is estimated to have been 7.7789 million tons, within which 802kt is industrial-fiber grade chips and 1.16 million tons is film grade chips.
As PET chips are an intermediate product which can regulate the supply of PET resin, adjusting chip output can quicken the recovery of enterprises’ investments. Meanwhile, the market for PET chips is highly related to that of upstream raw materials. In general, PET chips have an unusual sort of financial value to enterprises.