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Insight | Time: Mar 19 2019 3:26PM
Polyester industry: supply/demand decides position, downstream players still passive
 
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Recently, polyester feedstock market was in downward correction, and sales ratio of PFY has been slanting low for a week, resulting into mounting inventory. But the news that the VAT will be revised down from 16% to 13% from Apr 1 heated up the whole polyester market during last Friday. Namely, if PFY plants purchase feedstock in Mar and deduct it in Apr, the input tax will add by 3% to deduct VAT. Therefore, it is more cost effective to purchase feedstock in Mar theoretically if PFY price keeps stable.

Driven by this, downstream plants intensively restocked last Friday, pushing sales ratio of PFY up to 160%. This round of replenishment was mainly from enterprises that had low inventory at hand as worry on rising price stimulated them to procure.

Moderate purchase has appeared for several times if cooperated with bullish news since the second half of 2017. Once bullish news from macro side or polyester feedstock market emerged, PFY plants would witness sound sales, while downstream players were forced to purchase passively. 

Supply and demand decides position. Downstream twisting units and fabric manufacturing plants expanded capacity substantially in 2017-2018, which directly led to growing rigid demand for PFY. However, as for PFY market, the production growth rate peaked in 2017-2018, and a new round of capacity expansion began from 2018. Barmag winding head has been booked until 2021. Amid the dislocation of capacity expansion cycle on upstream and downstream market, tight supply and demand on PFY market has been mitigated after 2018, but is not completely reversed. Besides, new PFY plants are scheduled to intensively start operation in the second half of 2019, and the startup in Jan-May, 2019 is relatively scarce. Supply and demand fundamental of PFY is sound, so sales of PFY are often easy to be stimulated by bullish news.

Generally speaking, sales of PFY are still likely to be sound once bullish news appear when the supply/demand fundamental does not apparently alter. However, the stocks of PFY accumulated during the Spring Festival have not been totally consumed, and a great amount is at the hand of downstream plants or PFY plants. End-user demand is feeble, and high social stocks of PFY (finished goods inventory in PFY plants and the feedstock inventory of downstream plants) restrict the PFY market although it is firmer than downstream fabric manufacturing industry. Rising price on PFY market is mainly periodical tendency driven by bullish factors, and the continuity of downstream procurement is decided by the continuity of the bulls.

For downstream fabric manufacturing sector, players are still expected to be under passive position at least during the first half of 2019 before new PFY units starting operation intensively. On one hand, PFY market is anticipated to possess stronger saying in pricing with unchanged supply/demand fundamental; on the other hand, fabric manufacturing plants witness big selling pressure after great capacity add in 2017-2018, and the profit has been apparently squeezed.
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