How far will polyester market go amid hiking cost? –
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How far will polyester market go amid hiking cost?

2020-12-18 08:17:15 CCFGroup

Panic mood on the external environment gradually eased after the uncertainty of American Presidential Election faded in Nov. Entering Dec, price of oil and futures kept rising and started passed on to polyester fiber market, resulting into changing mindset of players.

Cost stimulus
This wave of uptrend was apparently stimulated by cost. In view of the tempo, price of oil rebounded at first in early-Nov, closely followed by PTA. Price of MEG touched bottom in mid-Nov and that of PFY and PSF gradually climbed up until Dec. From the perspective of demand, demand turned weaker in Nov, deviating from oil price.

Price returns to near earlier high
After this wave of increase, price of PTA and MEG almost increased to the high level since Apr, that of POY was close to previous high, that of FDY was weak and that of PSF was near 500yuan/mt lower than earlier high.

Price change since Apr
Date WTI PTA MEG PET fiber chip PET bottle chip POY FDY DTY PSF
Lowest level -37.63 2945 3048 4225 4650 4635 4960 6280 5170
Highest level 47.62 3655 3942 5000 5700 5800 6330 7435 6330
2020-12-15 47.62 3570 3942 4750 5350 5725 5835 7435 5800
Gap 0 85 0 250 350 75 495 0 530
Unit: $/bbl for WTI; yuan/mt for others

The root is the continuously firm of crude oil
In the week of December 4, EIA commercial crude oil inventories in the United States surged 15.189 million barrels month-on-month, and if gasoline and distillates were taken into account, the inventory increase was more than 24 million barrels. For example, the number of people applying for unemployment benefits in the United States rebounded and reached a new high in nearly three months. Lagarde expects the GDP of Euro Zone to return to contraction in the fourth quarter and maintain negative inflation until the beginning of 2021. In addition, the infections of novel coronavirus are still high, many countries still have varying degrees of blockade activities.

However, market participants do not pay much attention to it. After the news of vaccine emerged in Nov, it fares rapidly. It was successively approved in UK and Canada and then Pfizer vaccine was inoculated in UK. FDA also approved the request for emergency use authorization of Pfizer’s vaccine against COVID-19. Players show stronger confidence as good news appear every week.

In addition, Japan and Euro Zone successively implemented new stimulus package. The stimulus scheme discussion is undergoing in US. Coupled with the logic of undervalued oil price, price of oil continues climbing up.

In fact, players’ mindset also changes with firmer oil price and the progress of vaccine against the pandemic

At first, feedstock market was sluggish, downstream customers expected price to decline to low level and intend to gradually arrange bottom-fishing by the end of the year. However, oil price hiked unexpectedly, so downstream buyers were forced to replenish.

Currently, many twisting units, fabric mills and fabric traders have started restocking, which reflects the elasticity of demand and the expectation of recovering demand in later period. Therefore, operating rate of twisting units and fabric mills declined but still remains high.

In a sense, among the polyester industrial chain, players of sectors with huge capacity pressure hold cautious mindset, while those of other links present relatively more optimistic view toward 2021.

Current theme is: the reality does not change, but expectation goes ahead, hard to stop once begins.

Will the expectation be falsified? At present, it is hard to say, but at present, the market is dominated by long money, which cannot be taken care of for the time being.

Players present obviously diversified views toward oil price expectation in 2021. One is the radical such as Goldman Sachs, which expects oil price to $65/bbl, believing that commodities will be in a sustained bull market with underinvestment, a weak dollar and government stimulus measures; while the cautious, such as Fitch, still expects the average oil price to be at $45/bbl, thinking that the progress of vaccination may not be very fast, and weak crude oil demand is expected to continue at least until the second half of 2021. In addition, EIA expects oil prices at $48.53/bbl, JPMorgan Chase at $50/bbl and Bank of America Securities at $60/bbl.

Current Brent oil price has been above $50/bbl, gradually close to the medium level between the optimistic and pessimistic expectation.

For downstream customers, there is no harm in restocking moderately to sustain production as orders have been placed successively in expectation of recovering demand at the beginning of 2021. If orders start dwindling or price rises rapidly, players might have to weigh the risk against benefits.