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Insight | Time: Dec 21 2019 1:30PM
Polyester downstream market to see production suspension tide from Christmas
 
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Price of polyester feedstock surged in Dec, especially MEG, greatly pushing up the cost for polyester goods, and many polyester products have become not profitable. Most polyester plants chose to raise price passively to pass on the cost, and only few companies like Shaoxing Tiansheng chose to cut run rate and scale down production in advance. With the approaching of year end, speculative procurement of downstream buyers was limited, and some purchased when price was low, while looking-on mindset sustained. However, rising price can only stimulate the rigid demand. Current PFY price may be hard to decline but easy to increase in short run, so downstream plants are anticipated to purchase to cover the pressing demand before the Lunar New Year holiday, which renders intensive procurement to appear sometimes in Dec. Recently, MEG price kept hiking, so downstream buying interest was relatively stronger.

Downstream fabric mills that had orders at hand were hurry to finish the orders before the Spring Festival, and some other plants also increased purchasing when feedstock price was rising. Overall trading atmosphere slightly warmed up. In addition, the bullish news of the first-stage Sino-US trade agreement also boosted market players’ confidence. However, the effect on the chemical fiber downstream customers’ mindset and orders was limited, while the influence on cotton downstream customers and orders was bigger. Generally, rising feedstock price pushed up fabric manufacturing market and curbed the run rate of downstream plants from falling. The operating rate of fabric mills in Zhejiang and Jiangsu has remained at 62% for three weeks.


However, downstream fabric market is supposed to enter intensive production suspension period soon. Based on the research made by CCFGroup, intensive production suspension will appear from Dec 25 to Jan 10, and the run rate will reduce rapidly, especially on Dec 25, Jan 1 and Jan 10. Increasing feedstock price has both positive and negative influence indeed. The positive impact is that it pushes up the run rate of downstream plants with orders at hand, while the negative effect lies in that it accelerates the production suspension of plants without orders. Some downstream plants have restocked feedstock able to guarantee production near the New Year’s Day holiday, so partial rigid demand is put forward, and the rest rigid demand may be scarce.

Some downstream plants will procure feedstock to guarantee production before the Spring Festival, and the volume depends on their capital status and especially on the absolute price of PFY. Current PFY price is not very attractive for downstream plants. The payment collection of downstream plants and the PFY price change should be concerned in later period.

Spring Festival holiday schedule in major fabric manufacturing bases
Region Holiday schedule
Changshu Dyeing plants in Changshu have successively suspended production for holiday amid coal-to-gas switch from Dec 20. The run rate of warp knitting plants is around 50% now, and procurement of feedstock to cover the pressing demand has ended. All plants are anticipated to suspend production from Dec 25 to Jan 1.
Haining Warp knitting market in Haining outperformed in recent period, but business has started declining apparently from this week, with limited new foreign orders. Some above-designated warp knitting plants have successively cut their run rate, with O/R at 50-90%. Comprehensive operating rate of warp knitting plants in Haining is estimated at around 80% now, down by 14% compared with last week, which will speed up reducing later.
Shaoxing Some circular knitting plants were busy in finishing the orders at hand after feedstock price rose, and the run rate climbed up, mainly around 50% by now, up by 15% on the week. But most circular knitting plants are scheduled to shut down for holiday from end-Dec after orders completed.
Changxing Stocks of water-jet fabric were high now, and the run rate remained at 70%. Local traders reflected that most water-jet plants will stop production for holiday from Dec 25 to Jan 10.
Wujiang Stocks of conventional water-jet fabric were high too. Trading increased under low price after feedstock price surged, but inventory of grey fabric declined limitedly. Current run rate of water-jet plants in Wujiang was around 58% and most are anticipated to halt production for holiday in end-Dec. In addition, affected by environmental protection inspection, the production of setting machine in some printing and dyeing plants in Shengze, Wujiang is limited by 50%, which will last until December 31, 2019. The setting machine is unlikely to resume production before the Spring Festival holiday when the steam supply will be suspended near Jan 6 and workers will return home for holiday at the end of year, which is supposed to impact the delivery of some tail-in orders and the sequent order-taking and delivery. Coupled with high stocks of some descriptions, operating rate of fabric mills and twisting units is likely to reduce ahead of schedule in Wujiang.

In addition, the holiday schedule of some dyeing and printing plants is as following: plants in Changshu will take a lead in suspending production from Dec 20 amid coal-to-gas switch. Companies in Wujiang will start holiday from Jan 5-8, and those in Jiaxing, Xiaoshan and Shaoxing are scheduled to begin holiday on Jan 10-16.
[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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