Direct-spun PSF spread hovers around 1,000yuan/mt around the Spring Festival holiday, while in mid-Feb, after the reduction of inventory, PSF spread declines gradually, to around 800yuan/mt this week. The logical inventory of direct-spun PSF is less than 10 days, which seems the inventory pressure is not large, but the products are mainly purchased by traders in mid-Feb, not the downstream spinners. Therefore, traders sell based on basis level, and prices are lower than the level of plants. Plants are forced to follower, leading to continual downswing of PSF spread. Only when the inventory at traders’ hands is out, plants can have discourse power on market prices.

As spot-futures traders usually take the initiative to pick up products when downstream buyers purchase, inventory is mostly in PSF plants, so physical inventory can be better to reflect the current PSF plants’ pressure and downstream consumption. Recently, some plants start to collect storage fees to urge buyers to speed up delivery, coupled with the advantage of the basis trade this week, the delivery is faster and physical inventory begins to reduce. Currently, according to CCFGroup, the physical inventor of direct-spun PSF is around 24 days, still a relatively high level in the two years.

Looking at the yellow part in the chart, it is expanding apparently from the second half year of 2022. On one hand, PSF plant operating rate is relatively high, and there is also new capacity. On the other hand, downstream spinning mills’ operating rate is low, especially after the COVID policy change in Dec, 2022, the infection cases increased rapidly and spinning mills’ operating rate dropped quickly. Mills were shut for holiday in Jan basically, so the operating rate between PSF and spinning mills was more obvious. Though spinning mills’ operating rate recovers to a high level after the holiday, the PSF inventory stocked previously is hard to be digested. Finally, the supply and demand contradiction is seen currently.

In Mar, PSF downstream market sees no improvement in polyester yarn, polyester/cotton yarn and polyester/rayon yarn. Moreover, export orders are poor, and China domestic demand is also not favorable. In the spring and summer apparel sector, cotton takes the advantages. Polyester yarn and polyester blended yarn inventory piles up steadily after the holiday, at more than 20 days currently. In end month, the inventory may reach about one month. The situation is hard to change, and spinning mills may cut production in Apr. A few spinners with high inventory already intend to cut production recently.

Therefore, no matter how volatile the upstream market is, the core logic is the negative feedstock in downstream market. PSF market is hard to gain effective support, and it is only a matter of time to cut production.