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Insight | Time: Jul 7 2021 4:08PM
Polyester prices to inch down after feedstock futures collapsed
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Price of PTA and MEG futures rapidly ascended since end-Jun stimulated by rising crude oil price. Stronger cost and in expectation of recovering demand was the logic behind it, while such fast increase hit expectation. Price of PFY was pushed up after feedstock cost advanced. Taking POY as an example, price of it surged by 800-1,000yuan/mt within 2 weeks. However, price of PTA futures hit daily limit down today and that of MEG futures also plunged. Under such circumstance, overall market became quiet.


Price of polyester feedstock rapidly climbed up recently with increasing crude oil price and in anticipation of better demand. Actually, recent demand improvement mainly came from better speculative procurement as downstream orders only improved limitedly, mainly referring to the growth of knitted fabrics. Orders for some velvet fabrics for home textiles were placed in Nantong, and some orders for autumn and winter fabrics also appeared. Demand from warp knitting market in Changshu and Haining and circular knitting market in Xiaoshan and Shaoxing turned better. However, demand for woven fabrics remained plain during traditional off-season. It was common to see sellers undersell woven fabrics amid high inventory. In general, downstream market was diversified. Demand only improved slightly, focusing on replenishment in advance. Once crude oil price decreases, downstream buyers may be hard to continue restocking in advance. Therefore, demand side is not strong enough to push up upstream feedstock market continuously.


Some DTY plants and fabric mills have suffered losses based on spot PFY price after PFY price rose too fast. PFY prepared in downstream factories was averaged at 20 days now, which was mainly purchased when PFY price started rising. Downstream players were profitable based on the PFY prepared before. Once futures of PTA and MEG start reducing, downstream buyers will become apparently less active in restocking. Sales ratio of PFY is expected to shiver at low level in short run.


With heater weather, some regions start limiting the consumption of electricity. Taicang and Changshu from Jiangsu province may begin limiting electricity consumption soon. Whether the limit will expand further should be noted. If the electricity consumption is constrained, operating rate of downstream plants may dip obviously.


There will be some disadvantageous factors in terms of demand in the second half of 2021, but cautious and optimistic view is held. Firstly, downstream demand is expected to rise in the second half of 2021 but the profitability of fabric mills may be constrained due to large capacity expansion and stunted exports amid high sea freight. It is critical to grasp the appropriate procurement time. It means speculative demand will always exist. Secondly, peak season demand may release intensively at some time, while it is not expected to last long. Plants of the whole value chain ran at high capacity in the first half of 2021. Stocks kept accumulating, which is preparing for the second half of year. Once demand improves, these inventory will be disposed rapidly, which will shorten the durability of peak season.


Price of the whole polyester industrial chain may reduce slightly in short run with declining oil price. Players hold too high expectation toward demand now. If oil price continues increasing and even hit new high later and downstream demand recovers, the performance of polyester market may deserve anticipation. 

[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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