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Insight | Time: Oct 16 2020 9:47AM
Polyester staple fiber surges after the launch of futures
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China polyester staple fiber price has been soaring since the launch of PSF futures trading on Zhengzhou Commodity Exchange on Oct 12. ZCE set benchmark price for PSF futures at 5,400yuan/mt before the trading, compared with direst-spun PSF 1.4D spot price at 5,350-5,500yuan/mt ex-works or delivered in Jiangsu on Oct 10. Then, the most actively traded May contract for PSF futures has surged to close at 6,266yuan/mt on Oct 15, and the price increase continues.

(Up/down limit for PSF futures on the first trading day shall be ±8% of the benchmark price, and the daily up/down limit for PSF futures contract shall be ±4% of the settlement price of the previous trading day.)

1. Strong fundamentals
China PSF plant operating rate has approached 100%, while inventory is running low in most plants and some producers are even in short of 20 to 30 days of products. The cash flow of 1.4D increases to above 600yuan/mt. In addition, HC virgin and low-melting PSF are both robust in dearth of inventory.

In the end of Sep, PSF inventory level was merely 6 days, which means that there were only 60kt of PSF stocks in the industry (daily cotton-type 1.4D production is estimated at 10kt a day). After the week-long holiday in the beginning of Oct, downstream spinners increased the procurement of feedstock PSF, and traders restocked as well on bullish sentiment. PSF inventory fell far short of the requirements, and PSF was oversold. Therefore, producers raised prices in dearth of supply.

2. Cross-product arbitrage and hedge
Before the launch of futures, market players are bullish about PSF, especially compared to weak PTA. Participants go long PSF and short PTA as the cross-product arbitrage is workable. Spot-futures arbitrage is also sustainable, and the risk is avoided in buying spot while selling futures. In addition, the cash flow of polyester yarn maintains at around 600yuan/mt based on processing cost at 4,300yuan/mt, which means that feedstock PSF is still affordable.

3. Support from injection of liquidity
After the week-long holiday in the beginning of Oct, the market was buoyed by the injection of liquidity. PSF futures surged to hit the upper limit in the first two trading days. Besides from the support from downstream sector, rosy textile and apparel market, uptick in stock market and sharp rise in cotton and viscose staple fiber were also the driving force to PSF.

In a conclusion, PSF keeps soaring in spite of the fundamentals, and the strength sustains as the arbitrage in futures market continues. It is suggested to focus on downstream affordability as well as commodity and capital markets.

[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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