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Insight | Time: Jun 2 2023 2:04PM  Editor:Tina Kong
Analysis of yearly high polyester polymerization rate from the angle of demand
 
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The nominal polyester capacity has been revised up to 74.85 million tons/year in Jun. According to the data from CCFGroup, the polyester polymerization rate also hit new high at above 92% this week. Current operating rate of polyester market and downstream sector is both high. PFY, PSF and PET fiber chip plants witness high profit and low inventory. The operating rate of PET bottle chip also enjoys support.


Price of PTA and MEG shivers at low level this week dampened by commodity atmosphere and oil price. The polyester products see good profit and low inventory. The raise of run rate will reduce the cost per ton, which will further push up the profit of producers. Polyester companies are still active in ramping up operating rate. Some PFY plants also increase the production of PET fiber chip when they raise the output of PFY.

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The inventory of PFY and PSF has hit yearly low now, both consolidating aroura 25 days. The processing spread of polyester products is also high. According to the actual cost in factories, the profit of polyester products has been high, basically around 200-500yuan/mt. The profit of PSF plants may be slightly lower.

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The inventory of DTY, yarns and grey fabrics is mounting in Jun. Grey fabric producers witness weakening profit after PFY price increased. The recouping of capital is a problem in the middle of year. Coupled with the coming of heat summer, downstream plants may face bigger pressure to lower run rate. Some plants' run rate will be supported by orders at hand in short run. New orders are diversified among companies: new orders for knitted fabrics are weaker and those of water-jet fabrics are moderate.  Imitation acetic acid and cotton-like products perform better

 

The inventory of PSF and PFY will have upward space later, which has hit yearly low now. The polyester polymerization rate is expected to be firm in short run, with Jun average estimated at above 90%. As new units will start operation intensively, the fluctuation of PET bottle chip plants' operating rate should be noted.

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As for the supply and demand of PTA and MEG, PTA is expected to see a wide balance and the inventory of MEG may slightly reduce. The processing spread of PTA and MEG is both low now. Their price change will mainly depend on the oil price and the supply of spot goods. PTA market witnesses relatively better status than MEG.

 

As for the profit of polyester value chain, the PX and polyester products may be relatively better in Jun while PTA, MEG and downstream factories are supposed to encounter pressure from losses.

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Remark:

Melting cost under the corresponding oil price: deducted from the oil price

Real melting cost: based on the spot PTA and MEG price from CCFGroup on that day


May is supposed to be the off-season by convention. Why can polyester market witness low inventory, moderate profit and high polymerization rate? Is demand really so good? The following are some noteworthy reasons from the angle of demand.


Firstly, the postpone of demand in Apr. The feedstock price was high in Apr and had downward risk. Some orders were delayed. After the risk of feedstock was released in May, some orders were successively placed. In addition, some other buyers replenished raw material in May after the feedstock price dived.


Secondly, there are some orders for summer. Many brands ordered little for summer in Oct 2022 based on the spread of pandemic and the later trend. However, sales of summer wear exceeded expectation in Apr-May, 2023. Some branded apparel plants are still busy in producing for summer wear.

 

Thirdly, the business of some knitted fabrics improves. May and June are usually a window period. Orders for knitted fabrics for autumn and winter will be placed by convention. This year is no exception. Some domestic orders and export orders are placed.

 

Fourthly, downstream plants show higher intention to hoard up goods over Apr. The PFY stocks of downstream plants were low in Apr, expecting feedstock price to fall, while it has been increased to above 10 days in May from 3-4 days after feedstock price declined and players expected the PFY price will have limited downward space.

 

How about the future trend?

1. From the perspective of domestic demand, the slope of the month-on-month repair of domestic demand will become gentler in the second quarter, after the concentrated release of the backlog of demand in the first quarter. However, there is a difference for textile and clothing. As a seasonal consumer good, the demand for autumn and winter clothing is expected to have a chance in the second half of the year, but the demand is expected to start in Sep or Oct. Before that, it is mainly an off-season, and the sensitivity to price is relatively high. If the price really rises, the attractiveness of restocking will also weaken.

 

2. As for foreign trade, the destocking period may be longer than expected due to the decrease in overseas consumption of textile and clothing. The probability of overseas replenishment in the second half of the year, which was originally expected by the market, may be small, and the timing still needs to be postponed. The export of textile and clothing may show an "N" trend, with unexpected growth in the first quarter, a slowdown in growth in the second and third quarters, and a potential recovery in the fourth quarter.

 

3. Regarding polyester exports, the year-on-year increase was significant from Jan to Apr, with PFY increasing by 30% and PET bottle chip up by 22%. There were many reasons for this, including advanced stocking, especially for PFY exports to India, which saw a significant increase of 300% in the first four months due to BIS certification. As overseas consumption continues to decline, exports of both PFY and PET bottle chips are expected to gradually decline.

 

4. In terms of orders for fabrics, it is expected that orders will gradually decrease around mid-Jun, and will face a two-month off-season from late Jun to early Aug. Both domestic and export orders may face periodical reduction.

 

5. From the perspective of downstream sentiment, the recent oil price has fallen significantly but the price of PFY has gradually increased. DTY plants and fabric mills see falling cash flow again based on spot raw material price and some products have been unprofitable. Downstream buyers show falling buying interest. Taking one conventional product in Changshu as an example, Jiangsu as an example, the grey fabric was sold under 10yuan/kg in early-May and the price of POY was at 7.36yuan/kg at that time, ending up with apparently improving profit over Apr. However, it is still sold under 10yuan/kg now but price of POY has increased to 7.76yuan/kg, resulting into deteriorating profit. As a result, downstream plants resist the price uplift on PFY market.

 

6. High polyester polymerization rate is expected to be hard to sustain long. Polyester plants are estimated to face increasing pressure from sales and inventory from the second half of Jun. The run rate will descend thereafter. The polyester companies may encounter pressure to slash run rate in end-Jun/Jul.

[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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