Market outlook: China's recycled PET sector much shift to slower, but sustainable growth

09 November 2012 11:33  [Source: ICB]

China's recycled polyethylene terephthalate (R-PET) industry must move away from its factory image, to focus on providing better-quality, more value-added products and services to the rest of the world to gain a sustainable competitive edge, producers emphasise.

PET recycling Rex Features

Rex Features

The value of giving new life to old plastics may not be enough for R-PET in China

At nearly 3m tonnes/year, Asia is among the most important import markets for R-PET. This includes trade into China and India, but excludes production and trade in these countries.

Major uses are fibres and yarns (about 72% of global market share), sheet applications (11%) and blow moulding (about 11%).

In Asia, China is the largest importer of PET scrap with about 1.7m tonnes of imports in 2011, accounting for more than one-half of Asian demand, according to China Customs.

Close to 1m tonnes of R-PET short staple fibres are produced in China, according to one major producer. In the Chinese domestic market, close to 60% of PET fibres are used in yarn spinning, 20% for nonwovens and an estimated 10% for the filling market.

Being the world's most important polyester market, China's industry is reaching maturity, with limited growth in recent years. Demand from downstream textile and garment sectors is stable, but not strong enough to support another round of aggressive expansions.

The recycled polyester industry is still labour-intensive, focusing on machinery recycling. However, local manpower costs have been increasing and Chinese producers are gradually losing the labour competitive edge to other regions such as India, Pakistan, Bangladesh and other developing Southeast Asian countries.

ALTERNATIVE STRATEGY

"Chinese producers can no longer focus on having the lowest cost around as their branding strategy," said one major Chinese recycled polyester fibre producer. "It is about time for the producers to seek an alternative."

Recycled polyester producers are inspired by neighbouring regions when looking for a solution. Players with a better-developed sector - such as Taiwan, South Korea and Japan - found a niche market and gained a competitive edge, according to end-users.

"It could be a specific grade of recycled polyester yarns or fibres, or it could be a new processing technology," a Jiangsu-based recycled polyester maker said. "Either way, they make those producers or their products difficult to replace." However, players should be inspired to not only adopt other processes or technologies, but also to customise and innovate, the producer emphasised.

Players should recognise the power of branding as well. To move away from the traditional "world's factory" image for polyester producers, they also have to understand the power of vertical integration and innovation.

The majority of current strategies is still concentrating on "low-cost", although players have already recognised the importance of having value-added products or services.

Asia PET"The value-adding and eco-friendly concepts still need to be cultivated," said another producer based in Zhejiang, China.

Local producers also should focus more on developing the domestic market to cash in on the relatively steady growth in the country.

Chinese producers have been slowly shifting their focus to the domestic market in an attempt to balance their export and domestic supply ratio.

One major recycled polyester fibre producer in China is supplying close to 60% of its output to the local market while maintaining a stable export quantity every year.

In the 12th Five-Year Guideline for Textile Industry published by China's Ministry of Industry and Technology, developing a more established and regulated recycling industry was among the five major targets to achieve for the 2011-2015 phase.

In the current market, the downstream polyester industry remains heavily reliant on exports and the top three export destinations include the US, Europe as well as Japan.

BOTTLE-TO-BOTTLE

The domestic sector that bears the biggest recycling potential in China is the bottle-to-bottle recycling market.

So far there is only one domestic bottle-to-bottle producer in China because of the stringent quality standard for the process and the products. However, it faces fierce competition from the Chinese virgin bottle-grade PET market, market sources said.

China is the largest virgin bottle-grade PET chip producer, with a total capacity of close to 8.5m tonnes/year.

It is a net exporter, with annual exports totalling around 960,000 tonnes in 2011. The export quantity is expected to grow by around 20% to 1.15m tonnes in 2012.

Recycled PET flakes can substitute for virgin grade chips and the cost of recycled PET flakes is typically 70% of the cost of virgin grade bottle chips, according to regional end-users.

The huge capacity expansions in Asia - China in particular - have significantly intensified the competition among virgin grade PET producers themselves and led to softer PET bottle chip prices in recent months.

CAPACITY EXPANSIONS

Asia PET capacity is expected to rise by more than 2m tonnes/year to about 11.4m tonnes/year in 2012, while regional demand growth is expected to lag behind at around 6.5m tonnes/year, according to producers. Hence the regional supply surplus in the virgin grade PET chip industry is estimated, by some players, to increase to 5m tonnes in 2012, from 4m tonnes in 2011.

The direct impact of the aggressive expansions is the squeezed margin for all PET producers in the second half of the year.

In June 2012, the benchmark FOB Korea prices for the virgin grade bottle chip fell to a low since October 2010 to $1,230/tonne.

Most regional virgin PET chip producers were unwilling to operate at a continuous loss and had cut back their production rates to an average of around 80% among major players.

In the recycled PET industry, it will be difficult for producers to compete if virgin grade bottle chip prices remain at such a competitive level, one Taiwanese producer said.


By: Yu Guo
+65 6780 4359



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