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Insight | Time: Nov 18 2019 11:18AM
Polyester downstream market weakens again after Double 11 shopping spree
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Stocks of grey fabric declined rapidly after the National Day holiday. Downstream plants witnessed improving sales and orders before the Double 11 online shopping spree, and stocks of polyester filament yarn was in consolidating. Most PFY plants did not see big inventory burden. PFY plants were early expected to intensively suspend or cut production in Nov, but it is delayed.

Such good situation did not last long. Grey fabric market weakened after Double 11, with slower sales, mainly in warp knitting plants in Changshu, water-jet plants in Changxing and circular knitting units in Xiaoshan and Shaoxing. Different fabric mills witnessed various orders, with some able to guarantee production for around one month and some only for several days. Market players were not optimistic about later demand and feedstock market tendency. Some fabric mills suspended production to control stocks, and some dyeing plants cut run rate with inadequate orders. Independent DTY plants also saw slower sales after sales of grey fabric turned sluggish, but some plants cut run rate to curb inventory from rising, mainly in Changxing.

Overall fabric market turned weaker, but difference existed.

Stocks of grey fabric declined early in Haining, and market remained firm now. Operating rate of warp knitting plants in Haining remained above 90%, unlikely to suspend production temporarily, as many plants saw sufficient orders at hand. Intensive production suspension may appear in late-Dec or early-Jan. Stocks in Haining are lower than those in other regions, and the inventory burden may be not too big after the Spring Festival holiday. Mills in Haining are expected to show high production activity and moderate buying interest before the Spring Festival holiday.

Changsu and Taicang
Stocks of grey fabric dipped quickly driven by the restocking before the Double 11 shopping spree, and the decrement was more apparent compared with other weaving bases. However, overall market also worsened faster than other regions. Some plants frequently suspended and restarted production, and comprehensive operating rate of warp knitting plants slipped to around 70-80%. More plants intended to shut down in later period, and intensive suspension may appear before end-Nov. Some plants will have holiday for the Spring Festival in Dec. The overall holiday schedule for the Spring Festival of downstream plants is earlier than past years. Operating rate of twisting plants in Changshu and Taicang is anticipated to have support in short run, but sales have become thinner, especially 120D descriptions, not ruling out some plants slashing output before end-Nov.

Stocks of grey fabric in Wujiang were the highest among the major weaving bases, slanting high even after reduced in Oct, which are hard to reduce in short term. Cash flow of conventional grey fabric was during negative territory, so plants presented low production activity. Comprehensive operating rate of water-jet plants was around 60% now. Most water-jet plants adopted fixed wage settlement in recent years, so the production suspension will cause big losses in terms of labor cost and factory renting fee.

Inventory burden of grey fabric plants in Changxing was similar to that in Wujiang. Many brushed fabric manufacturers undersold due to high inventory burden, and the profitability was modest. Operating rate of water-jet plants in Changxing was not high even after the National Day holiday, and the inventory was controlled well. Water-jet units in Changxing adopted monthly wage calculation, which was better than those in Wujiang, so water-jet plants in Changxing still have the possibility to start holiday earlier amid inventory and cash flow issue. Many fabric mills kept running to lower the average cost of the stocks. As for twisting market, the run rate of DTY plants that had water-jet capacity was affected, and that of independent DTY plants was not high low, mainly around 70%.

Xiaoshan and Shaoxing
Circular knitting plants in Xiaoshan and Shaoxing had ample orders and controlled stocks better than other regions. Operating rate of circular knitting plants apparently ascended before the Double 11 online shopping spree with better sales. However, circular knitting plants cut run rate in order to curb stocks from mounting, with run rate mainly around 40-50%. Approaching year end, units that suspend production now may be hard to resume operation. Some post-LNY (Lunar New Year holiday) orders are likely to be discussed before the Spring Festival holiday, but the production will be arranged after holiday. Sales of DTY turned thinner after the run rate of circular knitting plants in Xiaoshan, Shaoxing and Cixi moved down. DTY market may weaken later.

All in all, operating rate of PFY downstream plants has declined, but the decrement is limited, so rigid demand for PFY still gains support. With slower sales of downstream market and the approaching of year end, inventory change in PFY plants should be concerned after more downstream plants suspending production for holiday. The possibility of polyester plants to cut output should be noted too. As for pre-holiday replenishment, it is suggested that players wait for the startup of new feedstock units and the narrowing of processing spread. Besides, the production curtailment of polyester units before the Spring Festival should be paid attention to.

[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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