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Insight | Time: May 11 2020 11:06AM
Polyester: better expectation supports O/R, high stocks should be alert
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Oil price increased in end-Apr and early-May driven by the eased blockade in some nations and the production cut of crude oil. Speculative procurement from polyester downstream market stimulated sales of PFY, and price of polyester feedstock and polyester products both climbed up.

The hiking sales of PFY in early-Apr and early-May were both propelled by the downstream speculative purchase in essence.

In view of the polyester stocks and inventory of downstream market, the stocks of polyester goods decreased, while those of feedstock and finished goods in downstream market ascended apparently, which did not include the increment from speculators from other industries and the traders within the industry.

The support of polyester polymerization rate is slanting firm in medium-to-long run
Inventory of polyester goods decreased, and may accumulate later, but is supposed to be hard to rise to high level in expectation of moderate downstream market. Cash flow of polyester goods rose to positive territory, and that of PFY improved, especially fine denier FDY.

The operation rate of polyester market increased again supported by moderate inventory, tolerable cash flow and speculative mindset of downstream market, which has increased to around 89.3% by now. Some polyester companies intend to raise run rate, and some were still offline for turnaround. Thus, the polyester polymerization rate is anticipated to be revised up to around 89-90% in May, ruling out the polyester units with unconfirmed restart schedule like Sanfame, Yingxiang, Xinmin and Huaya.

Downstream market is popped up by speculative demand, but the actual consumption improvement remains unclear

The actual demand for polyester products was blocked with high stocks to reduce. On one hand, the operating rate of downstream twisting units and fabric mills was not high in Apr, and the digestion of feedstock prepared was scarce; on the other hand, local sales and export of finished goods dropped apparently. Demand for textiles and apparels dipped obviously on the year, and the stimulus from some medical care materials like mask was limited.

Export is still likely to decline in May as the consumption is expected to be affected by the income in Mar-Apr although the overseas economic activities gradually resume. It is too late to produce orders for summer wear, and players are expected to be cautious in placing orders for autumn and winter apparels.

The local sales are during slack season. Sales of conventional goods usually recover in Aug, and sporadic orders may emerge in Jul. The local sales movement still needs further observation.

However, participants expect demand to improve later, and some buyers will speculate under low feedstock price. Downstream market is still anticipated to see high stocks in medium-to-short run. Some buyers may increase replenishing feedstock and some will hoard up finished goods. In addition, sporadic order placement of fabric traders may enlarge the optimistic anticipation and the reservoir volume.

The inventory burden of polyester industry is high compared with the same period of last year. Consumption is critical in medium-to-long run

Compared with the stocks of polyester industrial chain in early-May of 2019-2020:

Feedstock: stocks of PX, PTA and MEG all rose obviously, and the increment of PTA was the most apparent, up by around 150% y-o-y, if calculated into the usage days under 100% polyester run rate. The increase of PX was near 30% and that of MEG was below 15%.

Polyester goods: stocks of polyester market slipped by around 18% on the year after 2 rounds of destocking.

Downstream market: stocks of feedstock increased more than those of finished goods on the year, with increment at above 400% and around 25% respectively. With poor absolute demand, Downstream companies controlled the accumulation speed of finished goods by curbing the run rate, but the speculation was prominent in feedstock procurement. In addition, the participation of some capital and traders from other industries also enlarged the reservoir.

Among the whole polyester industry chain, inventory burden focuses on PX-PTA market and downstream side. Stocks of polyester feedstock increase less on the month supported by polyester polymerization rate, while the consumption of end-users needs time to improve, which is expected to face not small pressure in medium-to-long run as the pandemic affects the income of residents.
[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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