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Insight | Time: Feb 21 2020 9:59AM
Concerns: 'Buying the dip' of polyester downstream mills later
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Stocks of polyester products accumulated rapidly when the restart of downstream companies was slow affected by the epidemic, which have been higher than the peak during last year, especially PFY. The inventory was mainly in polyester enterprises that cut or suspended production in a small scale before the Lunar New Year holiday, and even has been above the historic high in some companies. Therefore, big polyester companies actually was eager sellers.

Some PSF, PET bottle chip and PET fiber chip companies took a lead in revising down price tentatively after downstream companies successively resumed operation and the logistics gradually restored. Sales ratio of PSF apparently ascended and stocks reduced rapidly after some enterprises greatly slashed price to near cost line. As for the price decrement, the low price of PSF has decreased by 600-700yuan/mt compared with pre-holiday level. However, demand for PSF was better than that for PFY. Virgin PSF can replace recycled PSF when price of the former is low. The recycling of PET flake faced difficulty against the backdrop of muted market consumption and the spread of epidemic. Trading price of PET fiber chip has slipped to 5,800yuan/mt recently, and the transactions improved obviously. PET bottle chip market also witnessed similar situation, with increasing large orders under low price. But PFY market remained largely quiet: only some companies revised down offers, and most leading companies sustained pre-holiday price level. Most market players retreated to sideline, so transactions failed to rise apparently.

Speculative demand always exists no matter downstream companies have orders or not. Participants are supposed to hoard up stocks when price declines a lot. Price of PSF, PET bottle chip and PET fiber chip has decreased to near cost line recently, and some players really had bottom-fishing. Therefore, the incentive of price reduction on PFY market on the downstream speculative demand should be concerned subsequently. However, the price cut may only create impulse type sales ratio in short run, and eyes are still suggested to the influence of downstream demand on the inventory change in medium-to-long term.

For the polyester products, particularly PFY, the major focus is how to reduce stocks and realize balance after the production resumed, depending on the price adjustment range and the recovery of downstream market. Current stocks are mainly in big companies, and large enterprises are expected to focus on selling in later period, willing to offtake large orders under low price, while small plants do not face inventory burden. Some downstream companies may have bargain-hunting after price declines, especially down to cost line or becoming unprofitable. The process of destocking is also a process of re-balance. Discounts are anticipated to dip after stocks reduced in big companies, and price may return to cost line or become profitable. The reduction of stocks of the whole industry is a simple transfer in early stage. The stocks of finished goods in polyester companies + the feedstock inventory in downstream companies remain high. Later focus is the decrement of stocks after downstream demand improved. As for the downstream market, the traditional peak season of the textile industry in Mar-May is anticipated to be discounted when the sales of winter wear and spring wear is dragged down by the epidemic and some exporting orders are transferred. Polyester companies are likely to realize slow destocking by continuing controlling the operating rate of the whole industry.

[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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