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Insight | Time: Mar 30 2020 10:56AM
PFY companies face pressure to cut output under demand shock
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The COVID-19 pandemic has deteriorated worldwide since the beginning of Mar, and increasing nations carried out blockade measures and advocated the residents to stay at home.

Export was experiencing the second round of impact. Some export orders were canceled when the restart of downstream companies was delayed by 1 month on the outbreak of COVID-19 pandemic. This time, some export orders were removed or postponed again amid the spread of pandemic abroad in Mar, especially after mid-Mar. Some branded apparel companies closed stores and some nations implemented lockdown measures, resulting into shrinking orders and affecting the timely order-receiving of foreign traders. 

Export growth rate of textiles and apparels dipped by 20% on the year in Jan-Feb, 2020 when the delivery of goods was affected by the pandemic and some orders were canceled, which may keep falling in Mar-Apr, 2020 amid intensifying spread of pandemic abroad. Around 30-50% of exports in Mar-Apr were canceled or delayed based on current statistics. If the pandemic is not well controlled in May-Jun, the export losses may sustain.

Many export orders were canceled or the delivery was postponed, and the local orders shrank. Stocks of grey fabric rose again when sales were not available, up apparently compared with Mar 13. Inventory of warp knitting grey fabric was mainly above 20 days, and that of water-jet grey fabric was near 15 days. Some fabric mills undersold. Operating rate of fabric mills is expected to decline under such circumstance, especially from end-Mar to early-Apr, and the decrement may approach 20% during this period. The run rate during the Tomb-sweeping Festival (Apr 4-6) may be even lower.

Big polyester enterprises adjusted strategy recently, turning to rapidly slash price, and the price of PFY has dropped by more than 1,000yuan/mt in recent half a month, gradually touching the cost line. Big PFY companies may face pressure to cut production with mounting stocks, and some large enterprises have been heard to scale down output. The fundamental of PET bottle chip and PSF market is better than that PFY, and PSF and PET bottle chip companies face small pressure to slash the run rate. The polyester polymerization rate change largely depends on the PFY units’ production cut as the run rate of PSF and PET bottle chip market is supposed to be largely stable. Increasing downstream plants had bargain-hunting in recent period, not ruling out large-scaled bottom-fishing to appear in Apr. If downstream plants have bargain-hunting in Apr, the polyester enterprises may periodically retard to cut output.
[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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