Outlook clear but overcast

China is a main player in the PET market. This applies not only to production but also to demand. A circumstance that, in the current situation with rising energy and raw material prices, is raising worry lines on the foreheads of many processors from abroad: supplies from the Far East are not forthcoming or are only available at a significant price premium. At least for 2021, machinery and plant manufacturers in China however, including foreign companies, have had positive economic developments to report. However, just before this issue went to press, the head of government Li Keqiang issued a target of 5.5% economic growth for this year, which is the lowest figure since 1991. And at this point, it is not yet possible to estimate what effects the conflict in Ukraine will have additionally.

Globally, the PET bottle market reached a value of US$ 39.7 billion in 2021, according to a projection of Imarc Group. Looking forward, the analysts expect the market to reach US$ 52 billion by 2027, exhibiting at a CAGR of 4.46% during 2022-2027. The Chinese market is seen as one of the global PET bottle market drivers. The rising trend of westernisation, inflating disposable incomes and altering food patterns of consumers have increased the demand for bottled beverages. Additionally, hectic lifestyles have enabled consumers to opt for on-the-go beverages. These developments result in the fact that China – which is considered the cheapest supplier of PET in the Asian region – meets high demand at home and is sold out. This also applies to the situation on the feedstock market.

Changing recycled PET market

The global recycled PET market size is expected to grow from USD 8.9 billion in 2021 to USD 11.7 billion by 2026, at a CAGR of 5.7% during the forecast period, according to figures provided by Markets and Markets. Flakes are the fastest-growing type segment in the recycled PET market. Growth is attributed to the rising demand in various end-use applications such as food-grade bottles & containers, sheets, and fibre.

Bottles are the largest and fastest-growing application segment in the recycled PET market. Increasing demand for rPET bottles in food & beverage packaging is driving the market. Growth of this segment is attributed to the rising demand for bottle-to-bottle recycling across the world. It accounted for a share of about 36.5% of the recycled PET market, in terms of value, in 2020, says a report by Research and Markets. Asia Pacific (APAC) is the largest and market of recycled PET, with China being the major emerging market.

Czarnikow market analysts see an rPET boom coming in Asia: attempts to use food-grade rPET in Asia has been contested by many of Asia’s largest food packaging producers like China and India. Now, more Asian countries are revising their stance on the use of rPET in food contact materials: India, Thailand, and South Korea have amended food packaging standards and food-grade rPET is a hot topic within China. Although China is the world’s largest producer of rPET, accounting for around 45% of current global rPET capacity, rPET flake is almost exclusively used in the production of textiles and fibre. Within China, until now rPET in food-grade applications been heavily restricted by food standards, Czarnikow explains. Quality safety certificates are required for local manufacturers to produce food packaging materials made of plastics and paper, and very few have ever been granted for the use of food-grade rPET. However, this could change in the future. The Chinese government is pushing efforts for the circular economy, and new standards are being established.

Only recently, on 1st of March, a new national standard became effective, the “Ecological technical requirements for recycled Poly(ethylene terephthalate) fibre” (GB/T 40351-2021), focusing technical requirements such as chemical residues, colourants or dyestuff. Although the food contact regulations in China are not expected to be changed in the short term, they will have a major impact on the rPET market, which is already experiencing higher demand than supply.

Market situation for foreign companies

Mid-January, the German Chamber of Commerce (AHK) in China, in cooperation with KPMG AG Wirtschaftsprüfungsgesellschaft, published the results of the annual “Business Confidence Survey”. Results show that confidence in the growth of the China market remains strong. German companies in China are confident about the current year: in 2021, almost 60% of companies in China reported improved business, and more than half expect an improvement of the development in their industry in China in 2022.

Also, the VDMA members reported that in 2021, revenue developments in China were better than originally expected for many machinery and plant manufacturers. In spring, respondents estimated their revenue growth for 2021 at an average of 17 per cent; the autumn survey forecasted an encouraging 22 per cent. Expectations for 2022 are significantly lower at plus 10 per cent, but still at a good level.

However, even a few months ago there were already some developments that cast a shadow over the China business. According to the survey conducted by the VDMA China, the shortage of raw materials and supplies, are regarded as an essential factor hampering business operations; 62 per cent of the companies see themselves affected by this. Bottlenecks in the supply of electricity posed a challenge for 32 per cent of the companies. This problem has been largely solved in the meantime.

The preferential treatment of domestic competitors against the background of a political focus of the Chinese economy on itself, has become a major challenge, as it is stated by AHK. This moves the challenge from 6th to 1st place in the study’s ranking compared to the previous year. Also among the top operational challenges are ongoing travel restrictions. The strict Covid-related entry regulations increasingly induce foreign companies to localise in China.

“Of course, the Russian aggression in Ukraine could not yet play a role in January [when the survey was conducted], and the effects of the war will not be seen in the order figures until March at the earliest,” VDMA economic expert Mr Olaf Wortmann comments the current development which might become the next top challenge, not only for China.

Sources: PETplanet Pulse, www.china.ahk.de, www.vdma.org, www.marketsandmarkets.com, www.czarnikow.com, www.chinesestandard.net, www.imarcgroup.com, www.prnewswire.com