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Insight | Time: Jul 8 2020 2:23PM
China PFY market review in the first half of 2020
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Price: descended rapidly under the pandemic and rebounded by 1,000yuan/mt driven by bottom-fishing, but the durability was limited.

Normal sales of PFY resumed lately affected by the pandemic. PFY companies were on holiday mood before late-Feb as the Spring Festival holiday was extended and many companies did not resume normal production and sales even after holiday impacted by the COVID-19.

Production successively resumed from mid-Feb, and PFY companies intensively cut price in late-Feb, but the consumption recovery of PFY was unsmooth. In addition, stocks of PFY have accumulated on extended Spring Festival holiday, and crude oil and polyester cost rapidly dipped. As a result, price of PFY continued hitting new low. The lowest price emerged in end-Mar and early-Apr. The yearly lowest trading price of POY150D was around 4,400-4,500yuan/mt, and that of FDY150D was near 4,900-5,000yuan/mt.

In early-Apr, end-users had bottom-fishing driven by crude oil market. Price of PFY turned to be in upward correction stimulated upstream and downstream market until early-Jun. The highest price of POY150/48 was around 5,800yuan/mt and that of FDY150/96 was around 6,350yuan/mt, up by around 1,200-1,300yuan/mt compared with the low level.

Price of PFY moved to downtrend again from mid-Jun with insufficient downstream demand and corrective cost market. By end-Jun, price of POY150/48 was around 5,350yuan/mt and that of FDY150/96 was near 5,750yuan/mt, down by 450yuan/mt and 600yuan/mt respectively.

Cash flow: depreciated seriously. The actual profitability was greatly discounted amid underselling

PFY companies saw meager profit in the first half of 2020.

Cash flow of POY and FDY was around 100yuan/mt before the Lunar Chinese New Year and was inflationary high for 2 months after holiday when commodity market restarted operation at first with rapidly declining price but trading price of PFY slipped later. Actually, the depreciation of stocks lasted into Mar-May and transactions were concluded under low price. Intensive low-priced trading emerged especially in end-Mar/early-Apr and end-Apr/early-May, and the cash flow pf PFY was mainly during negative territory. Therefore, the nominal cash flow of PFY was moderate in the first half of year but the actual profit was meager.

Sales ratio and stocks: sales surged periodically, and stocks were transferred

After the Spring Festival holiday, stocks of PFY hit new high impacted by the pandemic, with inventory of POY and FDY at around 31-32 days. Polyester cost collapsed after Lunar New Year holiday, and price of PFY hit historic new low. Under such circumstance, downstream speculative procurement was active, leading to apparently transfer of PFY stocks. Partial speculation was from the cash from the sideline attracted by the low price. As a result, stocks of POY and FDY dipped to around 12-13 days. Price of PFY did not keep rising after stocks decreased. Downstream companies witnessed mounting stocks from mid-Jun, and stocks of PFY accumulated again, with inventory of POY and FDY up to around 16 days and 18 days respectively.

New unit and operating rate: the launch of new units fares timely in large companies; operating rate of PFY industry was largely lower than the same period of last year
The startup of new PFY units in H1 2020 focused on large enterprises, mainly including 4 units from Hengyi, Xinfengming and Shenghong with 1,050kt/year of capacity. Dull PFY was the mainstream products. Yipeng's new unit transferred production after launched; POY and FDY was in equal proportion, both 50%.

New direct-spun PFY units in H1 2020
Enterprise Capacity (kt/year) Products Startup time
Hengyi Haining Phase I 250 Semi-dull POY Feb-20
Hengyi Yipeng Phase III 250 Dull FDY+POY Mar-20
Xinfengming Zhongyi Phase I 300 Semi-dull POY+FDY Apr-20
Shengze Shenghong 250 Dull POY+FDY Jun-20

In the first half of the year, the operating rate of direct-spun PFY was lower than the same period of 2018 and 2019, and lower than the average of the previous 5 years. On the one hand, affected by pandemic, the holiday durability and production suspension or cut during the Spring Festival holiday was much longer than past years; on the other hand, PFY companies would choose to cut run rate to lower production under inventory burden or slightly increase the output of PET fiber chip.

Consumption: domestic demand was supported by speculation, but the export met stronger resistance
In the first half of the year, stocks of PFY fluctuated dramatically, which ascended greatly near the Spring Festival holiday and declined in Apr-May mainly driven by the speculative procurement of end-users. Actually, the operating rate of downstream mills was not high too, and that of fabric mills and twisting units in Zhejiang and Jiangsu was both lower than the corresponding period of past years.

Exports of PFY apparently declined in the first half of 2020 as the international production and consumption of textiles and apparels was impacted by the pandemic and some nations like India, Vietnam and Mexico raised trade barriers on PFY originated from China. Exports of PFY amounted to 967kt in Jan-May, 2020, down 13.35% on the year, and the net exports of PFY totaled 934.2kt in Jan-May, 2020, down by 12.79% on the year.

Market forecast for H2 2020
Price of PFY is expected to be affected by the crude oil and polyester feedstock market, likely to be in range bound when stocks of feedstock are high and pressure may intensify with many new units in the second half of year, and the premise is that the price of crude oil does not surge.

New capacity of PFY continues growing, and the operating rate may be dampened by demand and cash flow.

High stocks of finished goods and feedstock on downstream market may continue into the second half of year. Demand for PFY is supposed to be constrained by high downstream stocks, and overall inventory of PFY may ascend in Q3. Trading of PFY may improve when speculation emerges under low price. However, the speculative demand may be worse than the first half of year in H2 2020 restricted by capital and demand.

Demand from textiles and apparels may remain meager. Operating rate of twisting units and fabric mills is supposed to be not high, resulting into insufficient rigid demand for PFY. Although speculative procurement may exist, the yearly growth rate of PFY production is anticipated to be limited.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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