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Insight | Time: Nov 9 2018 9:16AM
Polyester: mulls over production adjustment on substantial devaluation of inventory
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The whole polyester industrial chain was in correction in Jan-May, 2018, while great up-and-down was seen in Jun-Sep, and price kept falling substantially since mid-Sep, not showing signals to end.

With sharp up-and-down of price, inventory of PFY also experienced yearly low and high during the same period, which could be divided into 3 stages:

Stage 1:
From mid-Jun to mid-Aug, price of PFY continued rising and the value of stocks increased, but the inventory was not high. Some PFY plants were out of stocks during this period and overall inventory dipped. Thus, polyester plants did not benefit much from the value add resulted from price growth. On the contrary, the stocks of feedstock and finished goods in downstream plants successively climbed up, able to enjoy the value increase on price rise.

Stage 2:
From mid-Aug to mid-Sep, PFY price edged up further, and downstream demand started failing to chase up. The value still increased when PFY inventory accumulated, but the price has hit low and stocks did not find buyers. Therefore, the actual appreciation did not appear.

Stage 3:
PFY price continued dropping since mid-Sep, and decrement of mainstream descriptions has been around 3,000yuan/mt by now. End-users controlled purchasing volume cautiously. Stocks of POY increased by around 10 days, up by around 17 days from the lowest level. Starting from price cut, the value reduced by 16.50 million Yuan for 10 days based on 550mt of daily production in a plant with 200KT of annual capacity. During this stage, downstream plants controlled feedstock inventory at low, so the devaluation was limited, while the inventory of finished goods was high and sales remained dull, so the value loss was as big as PFY.

Actually, price reduction failed to stimulate sales in recent two months, but impacted players’ confidence, and the devaluation caused by continuous price slash has exerted big influence on upstream and downstream market.

Currently, both PFY plants and downstream weaving or twist units had low feedstock inventory but high finished goods stocks. Demand exists in later period but will be hard to push up overall market with the approaching of Spring Festival.

The operating rate of twisting and weaving plants has rapidly declined, largely around 60-70%.

Some polyester units have declared to scale down output, and more production suspension and cut is expected to appear in the second half of Nov due to mounting inventory and increasing shutdown of downstream plants. Inventory burden is slanting high among different links, so the scale of production slash and suspension may be bigger during the coming Spring Festival, and the time may be longer.
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