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Insight | Time: Mar 19 2020 1:40PM
Worsening COVID-19 abroad to weigh on polyester export &downstream O/R
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The COVID-19 pandemic has been deteriorated overseas, and the total overseas infections have been surpassed those in China now. The latest data was updated here Latest on the novel coronavirus outbreak.

Current polyester polymerization rate has ascended to above 81% with eased COVID-19 pandemic in domestic China and increasing production resumption, and the run rate of fabric mills in Zhejiang and Jiangsu rose to near 70%.

Domestic supply has recovered now, but the spread of COVID-19 continued abroad. Market players paid much attention to the influence on the export of polyester products.

Exports of polyester products have kept growing in recent years, approaching 7550kt in 2019, and the proportion of export in total polyester output was largely around 14-15%.

Export growth of polyester goods made a great contribution to the total polyester production increase since 2016, contributing 660kt to polyester output growth in 2019 and sharing 15% of the total production increase.

As for the export proportion of different polyester goods in 2019, PET bottle chip took a big share, followed by DTY and PSF.

Among the top 5 export destinations for polyester goods, South Korea and US was worst-hit by the COVID-19 pandemic, which mainly affected exports of PIY, and the influence was analyzed in this report PIY export to be stunted with intensifying COVID-19 pandemic abroad.

Exports of PSF and some PFY will be also impacted, but the influence on major export markets for PET bottle chip and PET fiber chip was small. Many European nations have enhanced prevention and control amid more serious pandemic spread, and export may be stifled later. In addition, the domestic demand for polyester is supposed to be dampened further after exports of made-ups including textiles, apparels, shoes and hats frustrated.

The intensifying COVID-19 pandemic is expected to affect the export of polyester products, mainly export of PFY and PSF, especially PIY, which will affect the textiles and apparels market too.

Domestic sales and export were critical for domestic textiles and apparel enterprises. The export value of textiles and apparels (under RMB basis) accounted for the total revenue of textiles in China at around 40.33% and 46.77% respectively in 2018 and 2019.

Domestic sales of textiles and apparels decreased substantially in Jan-Feb, 2020
The COVID-19 outbreak started in late-Jan in domestic China and the government made great and intensive effort to prevent and control the spread of pandemic in Feb, which impacted the domestic sales of textiles and apparels. The online and off-line consumption of textiles and apparels declined substantially.

Retail sales of commodity in China totaled 4793.55 billion Yuan in Jan-Feb, 2020, down 17.6% on the year, and the y-o-y decrement of textiles and apparels was bigger. The retail sales of textiles, shoes, hats and knitwear was at 153.4 billion Yuan, down 30.9% on the year, and that of apparels approached 1103.1 billion Yuan, down 33.2% compared with the same period of last year.

The online commodity retail sales reached 1371.2 billion Yuan in Jan-Feb, 2020, down 3% on the year. Retail sales of physical goods were at 1123.32 billion Yuan, up 3%. Among the physical commodities, the retail sales of physical goods for cloth slipped by 18.1% y-o-y, and that of goods for food and the necessities decreased by 26.4% and 7.5% respectively.

Exports of textiles and apparels collapsed in Jan-Feb, 2020
According to the data from China Customs, exports of textiles, yarns, fabrics and made-ups were at $13.7725 billion in Jan-Feb, 2020, down 19.9% compared with the same period of last year, and those of apparels and accessories approached $16.0623 billion Yuan, down 20.0% on the year.

The export and domestic sales of textiles and apparels apparently decreased in Jan-Feb.

Market players expected the textile market to improve in early-Mar during the "the traditional golden season for textile industry" when export orders slightly increased after the Lunar New Year holiday and the run rate of downstream market successively ascended, up to around 70% by now from 33% in end-Feb.

Global financial and commodity market plunged amid escalating COVID-19 pandemic overseas. Some downstream companies canceled orders.

Some domestic factories canceled delivery and booking shipment; if the production of some orders for conventional goods is about to finish, these goods will be kept in the warehouse after packaged. The production is required to suspend immediately if just begins. If it is a new order, the production will be not arranged, waiting for further notice.

The influence on the orders to Europe, especially Spain, Philippines, Cambodia Japan was bigger. Some companies canceled the orders by scarifying the deposit.

On one hand, the COVID-19 pandemic impacted the subsequent transportation (some countries have blocked the ports); on the other hand, the income and consumption of different regions was depressed.

Many fashion brands have closed the stores
The proportion of exports of Chinese textiles and apparels to EU, US and ASEAN was about the same in 2019, as high as around 17-18%. Thus, the whole textiles and apparels exports will be greatly affected if exports to one of the regions are stunted.

Short-term export orders of downstream market have been impacted. Reflected by the downstream fabric mills, around 30-50% of short-term export orders are expected to be impacted.

The spread of pandemic has been curbed in domestic China, but the demand in Jan-Feb was dull as residents' income was affected. Consumers are expected to purchase to cover the most pressing demand in short run and focus on the daily necessities; Thus, the short-term consumption of textiles and apparels may remain sluggish.

Currently, many textiles and apparels enterprises face pressure in terms of capital and inventory, and their production activity is supposed to be dampened in expectation of low oil cost. The stocks of downstream fabric market have continued mounting when some export orders are canceled and domestic sales fail to improve. However, the operating rate of fabric mills has been slanting high, not ruling out the twisting units and fabric mills to slash run rate in end-Mar or Apr. As for the upstream polyester market, many companies have witnessed huge inventory burden, and may cut run rate again if the demand in Q2 is worse than anticipated, further dragging down the operation of polyester enterprises.
[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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