Spend Matters welcomes another guest post from Monika Sosnowska of Mintec.
With warm weather approaching, people are starting to drink cold drinks again, which inevitably means a rush of demand for PET (Polyethylene terephthalate) - the plastic that soft drinks bottles are made from. PET prices tend to rise in the early part of the year when the bottle producers increase stock levels in preparation for the beverage consumption during summer. However, for the past year prices have been falling across the globe and the downward trend seems likely to continue.
The major reason behind the drop in global prices is the addition of new PET capacities, mostly in China, which has resulted in Chinese PET prices declining by nearly 20 percent since February of last year. Estimates show that this year’s global supply of PET will grow to almost 30m tons, but consumption is projected under 20m tons. That means a significant oversupply on the PET market. Overcapacity in China in particular is estimated to exceed 3m tons in 2014. Additionally, it is estimated that approximately 17m tons of PET will be added to China’s production capacity over the next three years, which will result in a continued overbalance of supply.
This has inevitably put a downward pressure on prices globally as other regional producers have been forced to lower their prices to compete with the cheaper imports from China. To add salt to the wound, there are also new plants due to be opened in Europe and Africa. This means that the import and export flows might see some changes in direction. Once the new plants have opened in the UK and Belgium, European buyers are likely to find adequate supplies locally. The consequential reduction in demand for Chinese PET could drive prices down even further.
Of course the weather can also have an effect on PET prices. Last year in the US, PET prices fell in the run up to the summer, as the spring weather was colder than usual and demand for bottles was lower than expected. Looking forward though, high temperatures this summer could help reduce some of the accumulated stock of PET, easing the pressure on prices. In recent weeks, perhaps due to the warmer weather, there have been some signs of increasing global demand. However, the typical drop in demand in the second half of the year will likely offset this.
So even if we have a scorching summer, it seems likely that the sheer volume of accumulated PET stocks will continue to keep prices low for some time.