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Polyester: gradually step into rising price but shrinking sales

2021-10-19 07:58:39 CCFGroup

Price of crude oil hiked since the National Day holiday. Price of PTA and MEG was also firm after holiday impacted by unexpected production suspension and strong raw material prices. Impacted by substantially higher polyester feedstock, prices of polyester filament yarn extended higher.

During the National Day holiday, the retail sales of one hundred key large retail enterprises in China (mainly department stores) decreased by 9.2% compared with the same period of last year and down 0.1% from 2019 level respectively. Domestic demand did not perform well during the traditional peak season. Fabric mills also did not see good orders now. With weak downstream market but falling stocks and expanding profit on upstream market, what's the logic behind recent increase on polyester market?

Reducing inventory and expanding profit of the whole industry was caused by periodically tight supply. If regarding polyester, twisting, fabric manufacturing and printing and dyeing sectors as the production chain and treating consumption field as the end-user demand, the regulation of energy consumption resulted into large-scaled electricity consumption limit on production chain. The reduction of supply is expected to outpace that of demand in short run. As a result, factories of the production chain witnessed decreasing stocks and expanding profit. For example, many twisting units suspended production due to the regulation of energy consumption and many witnessed apparently declining inventory and higher profit. As for rising price of the whole polyester market, it was mainly benefitted from substantially increasing prices of crude oil, coal and natural gas etc., which could be described as cost-driven rise.

Players are anticipated to pay less attention to downstream demand in short run when the electricity consumption is apparently limited amid the Dual Control and upstream feedstock prices move up obviously. Polyester market is still likely to see slipping inventory, higher profit and increasing price in short run amid tight supply and advancing cost. PFY stocks of downstream plants average at above 20 days now, which can guarantee production into end-Oct based on normal run rate, while it may support production into early-Nov if downstream production is reduced amid energy consumption limit later. Speculative demand for PFY is expected to gradually diminish later. As a result, polyester products may see slower sales and falling destocking speed. Prices of polyester products may turn to rise but transactions are likely to shrink later, instead of increasing sales and prices at the same time.

This round of price increase on polyester market is simply driven by cost and the price tendency of upstream energy market will be decisive to the durability of price uplift in medium-to-long run, which is uncertain now. Once prices of energy products stop increasing, prices of polyester products bound to follow. How long will falling stocks and expanding profit of the whole chain sustain mainly depends on when the regulation of energy consumption will alleviate. The regulation is likely to be strict at first but ease later in Q4. Current polyester market witnesses improving market fundamentals, and the polyester polymerization rate enjoys upward momentum. However, as the regulation remains strict now, the polyester polymerization rate recovers slowly (mainly referring to Oct). Whether the control of energy consumption will be eased in Nov-Dec needs further observation. If it is mitigated, the operating rate of production sectors is also likely to ascend. By that time, it is necessary to assess the supply and demand status again and players may turn to concern downstream orders again.

Domestic demand is expected to enjoy some support in Sep-Oct. Supply greatly shrinks and demand slightly improves. Periodical gap between supply and demand and higher prices resulted into growing speculative demand from downstream market, which caused short-term supply tightness. However, speculative demand starts falling as many buyers have replenished many goods. That means supply tightness is estimated to alleviate. When the production curtailment is bigger than on downstream market, polyester enterprises are even likely to see slightly accumulating inventory. Domestic demand is supposed to be thinner in Nov-Dec and it is suggested to pay attention to the export orders for spring wear in 2022. Some players concern whether recently falling sea freight will boost export orders. Demand for textiles and apparels is mainly stimulated by export in 2021, while exports of textiles and apparels have peaked based on grand tendency and start falling slowly. If the regulation of energy consumption eases and the operating rate of feedstock plants ascends, reducing stocks and expanding profit of polyester market is likely to end.

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