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Insight | Time: Jun 29 2022 11:24AM  Editor:Tina Kong
Polyester companies cut more output under plight
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Operating rate of DTY plants and fabric mills apparently increased after the Dragon Boat Festival, even as high as 61%. With increasing raw material prices, some orders for autumn and winter were placed. Inquiries for grey fabrics slightly grew and price of some conventional grey fabrics was revised up. However, after raw material price rapidly fell back, inquiries for grey fabrics cooled down again and the improvement of orders lacked durability. Most downstream buyers concentrated on consuming PFY prepared before under losses and in expectation of bearish view toward raw material price. Some downstream plants even plan to cut production again after feedstock at hand being used up. The operating rate of DTY plants and fabric mills have continued reducing for two consecutive weeks. Sales of PFY sustained slack and stocks rapidly piled up, which have been above one month again. PFY companies were forced to increase discounts in the second half of Jun, with decrement above 1,000yuan/mt.

Polyester companies witnessed plight in the second half of Jun just as Mar: the losses enlarged after price rapidly fell. High stocks encountered the pressure to devaluate. The cash flow of PFY based on 25-day moving average cost was during negative territory again. Polyester enterprises with high stocks, especially leading companies, faced bigger pressure to scale down output. Some leading polyester companies intended to slash production by 30% according to yesterday news and the actual implementation will be closely traced up by CCFGroup.


Domestic demand is expected to recover weakly in the second half of year with alleviated pandemic and the release of stimulus policies. Export demand may tend to weaken marginally with falling growth rate of consumption outside China and the rerouting of orders from China to Southeast Asia, with growth rate estimated to fall to one-digit level. As Jul and Aug are traditional slack season, demand may not rise much, which is one of the reasons for companies choosing to cut production in Jun. If feedstock price stabilizes after dropped, speculative replenishment may emerge again in the future in long run.

As for the trend of polyester polymerization rate, if some big PFY companies decide to reduce production by 30% this time (original operating rate is near 90%, having cut production by 10%), they will slash production further by 20%, covering more than 4 million tons of capacity and to impact 6-7 percentage points of run rate. Whether they will scale down the output within one time or reduce by batches remain uncertain. According to the statistics from CCFGroup, 2.7 million tons of units are scheduled to resume operation in end-Jun and Jul, which will push up around 4 percentage points of operating rate. Therefore, the average polyester polymerization rate is expected to slip by around 3 percentage points in Jul (with monthly level at 81% pessimistically). Above is only a brief assessment, the actual operating rate depends on the production reduction in big plants and the restart of small units.

[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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