PFY: Strong downstream procurement may be hard to sustain

Some leading polyester filament yarn (PFY) enterprises discounted price by 400yuan/mt on the morning of Apr 12. Sales of PFY apparently improved by A.M. 10:00 on Apr 12, with sales ratio as high as 300-450% in some plants. The sales ratios of major plants were at 450%, 400%, 100%, 200%, 200%, 200%, 350%, 150%, 200%, 300%, 350%. Sales increased later in some enterprises as makers cut price slower.

PFY makers slashed price substantially this time in order to mitigate inventory burden in PFY makers and lower purchasing cost for downstream players. Sales of PFY have been sluggish since Mar, ending up with mounting stocks. By Apr 9, average stocks of POY, FDY and DTY were near 18 days, 25 days and 25 days respectively. Some PFY plants have witnessed inventory burden. Price of PFY was resilient earlier and cash flow sustained as high as 800-1,000yuan/mt. High PFY cash flow prevented downstream buyers to restock. Many grey fabric plants have been suffered losses based on spot PFY price now and they only purchased PFY on a need-to-basis even after PFY prepared being used up. Meager orders also constrained downstream plants to replenish. Some mills even planned to cut run rate to prevent stocks of grey fabrics from rising.

How about the continuity of such good sales on PFY market? End-user demand is a key. According to the survey made by CCFGroup, domestic business within China has recovered to the level in 2019 as government encouraged and strove for domestic demand expansion, but demand outside China remained poor.

Poor export demand is mainly due to the following reasons: firstly, high feedstock price and surging sea freight result into stunted export orders and some orders are heard to flow back to Southeast Asia. Whether export orders can chase up after prices dipped should be concerned later. Secondly, some nations outside China carry out blockade again as the deployment of vaccine and control of pandemic is worse than anticipated. Some orders are canceled, including orders to Brazil. Thirdly, customers from outside China are not able to visit China and attend fairs in person like before. Simply online communication affects efficiency and the volume of orders to a certain extent. Finally, apparel stocks are low in US but may be high in Europe. The reduction of consumption outpaced that of apparel supply outside China in 2020, which may end up with piling up stocks.

End-user demand may be not very good in the first half of 2021. By convention, production of sampling orders will be basically completed by now. Even if prices decline, orders will be hard to grow much. Worse-than-anticipated orders this year may be caused more by demand side rather than high price. May-Jul will see traditional slack season on textile market. That means downstream market may be hard to improve. It is hard for downstream players to keep showing strong speculative buying interest when stocks of finished products keep accumulating. They are more likely to purchase PFY when price is low amid high PFY cash flow.