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Insight | Time: Sep 5 2019 1:54PM
Polyester market welcomes the best time, but may be fleeting
 
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The State Council executive meeting pointed out that it will timely use the tools such as general RRR cuts and targeted RRR cuts, indicating that future RRR cuts are expected, and monetary policy releases marginal loose signals. The oil price rose sharply by more than 4% on Aug 4. Driven by good news from macro market and upstream feedstock market, coupled with recent sales surge, price of PFY rose 50-100yuan/mt on Aug 5. Sales are largely sound in the morning, and the average sales ratio was assessed to around 140-150% till A.M.11:00. The sales ratios of major plants were at 150%, 100%, 100%, 150%, 250%, 100%, 100%, 270%, 100%, 200%, 50%, 0%, 100%, 100%, 170%, 300%, 0%, 200%, 300%, 50%, 500%, 100%, 100%, 300%, 80%.

Polyester plants have welcomed the best time of this year. Although downstream plants witness worse-than-expected orders, the high run rate is a crucial support to polyester market. Inventory, cash flow and operating rate of polyester market has approached the best level in the second half of year. Huge capacity expansion on downstream market provides a solid rigid-demand foundation for polyester market, and many new polyester units are scheduled to start operation in the fourth quarter of 2019. Unless operating rate of downstream market declines, otherwise, the stocks of polyester products are not likely to accumulate in this period. Hiking run rate of downstream plants in Aug-Sep is the critical reason for apparently improving prosperity on polyester market.

However, such circumstance is not expected to last long, which may alter in Oct. Eyes are highly suggested to the run rate of twisting units and fabric mills.

In view of the polyester industrial chain, polyester market and downstream twisting and fabric manufacturing market obviously diversifies, so do situations among different polyester products. Polyester polymerization rate ascends in Aug-Sep, and cash flow improves apparently, especially POY with high cash flow and low stocks, which embracing the yearly best time. Relatively, FDY market turns better, but the improvement of profit and inventory is not comparable with that of POY. As for downstream twisting and fabric manufacturing market, conventional descriptions are around cost line, and high finished goods stocks have existed for a long period. Although downstream market has improved in recent period, the strength is not apparent. Downstream players still face big pressure. Generally, the performance of sectors closer to downstream market is worse.

The contradiction on polyester market still relies on downstream demand, but it is not time to break out. Downstream demand has improved marginally since Aug, and September is a crucial time to check whether the demand improvement is authentic. By convention, the demand in mid or late-Sep, namely the period after the Mid-Autumn Festival and before the National Day holiday, will peak, but downstream orders fail to improve obviously based on current reflection. Downstream demand may have approached sub-peak now, and the future improvement may be limited. Sales of some non-conventional descriptions which were moderate before weaken recently. In addition, sales of some conventional varieties in Changshu, Haining and Wujiang still do not rise apparently. Sales ratio manages to be around 100% in some plants, but not strong enough to drag down stocks. More information about downstream market could be found from Operation report of fabric mills in Zhejiang and Jiangsu
.

Currently, downstream plants continue to face high stocks, low profit and tight capital on high stocks, and pressure maintains. With the coming of Mid-Autumn Festival and National Day holiday, contradiction is likely to outburst. The possibility that downstream plants will suspend production increases, especially during the National Day holiday.
[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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