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Elevating cost continues driving polyester filament sales and destocking

2020-05-22 09:16:25 CCFGroup

Sales of polyester filament yarn improved again in mid-May, and price slightly moved up, which was mainly attributed to rising cost.

Price of crude oil ascended, with price of WTI and Brent up by 68.9% and 37.8% respectively to $31.82/bbl and $34.81/bbl respectively in May, which was mainly because investors expected demand to improve with eased economic regulation.

Polyester cost has increased by 6% to 4,144yuan/mt in May amid higher cost. Supply of MEG was largely loose-to-balanced under low run rate. The anticipation of accumulating stocks on PTA market mitigated a lot after unexpected shutdown of units.



PFY companies enlarged discounts with higher cost, and downstream plants increased purchasing feedstock again, pushing up sales ratio of PFY. Price of PFY slightly rose after stocks decreased, with price of POY, FDY and DTY up by 6.7%, 10.6% and 5.2% respectively compared with end-Apr. Cash flow of PFY ascended. Cash flow of POY and FDY turned to positive territory from negative territory, and that of FDY climbed up apparently.



Except for cost issue, how much is driven by the actual demand during this round of sales improvement?

Operating rate of downstream fabric mills and dyeing plants both increased compared with Apr.



Operating rate of fabric mills and dyeing plants both climbed up, which seemed to be largely similar to the situation in Mar, while manufacturers had different feelings. In Mar, especially in the first half of Mar, factories were eager to finish the orders taken before the Spring Festival holiday, but many workers did not return to their workplace. Thus, plants felt that there was no enough time to finish orders. However, most workers have returned to their job now, but the orders were scarce. The wage has to be paid, and the stocks stored has accumulated obviously compared with Mar. The working capital was declining.



The pressure in digesting stocks of PFY continued moved afterward.

Some downstream players increased purchasing feedstock or hoarding up finished goods with rising cost, expecting stocks to appreciate and demand to improve in the second half of year. Some orders were mainly placed by traders under low price, and the fabric mills witnessed very low profit. Many fabric mills took into orders in order to transfer stocks at hand. Some goods were still not picked up, so the stocks of fabric mills kept mounting.

How much benefit will improving demand in the second half of year create for fabric mills? It is still a question. Currently, some downstream companies are optimistic about the demand in the second half of 2020, but some enterprises still do not hold much anticipation. The overseas economic activities are gradually resuming, but some apparel producers in Southeast Asia and some branded apparel companies in Europe and US were heard to shut down, which has been perceived by some export-oriented companies in China. For fabric mills with high inventory, the capital in the year end will be a test if there is no big destocking in the second half of year. Generally, companies will consider the capital issue before the year end. Some will adjust the production in the fourth quarter after they felt the capital pressure in Jul-Aug.

All in all, although the rigid demand was modest, speculative procurement still existed amid escalating cost. Stocks of PFY may accumulate limitedly in short run. Coupled with rising cost, price of PFY is likely to be in upward correction in short run consistent with feedstock market to guarantee cash flow.

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