Polyester polymerization rate may start falling

Many downstream pants witnessed worse-than-anticipated business after the Lunar New Year’s holiday amid the regional spread of pandemic, intensified Russia-Ukraine conflict and soaring oil price. However, many market participants still held expectation toward the peak season in the first half of year, while such anticipation seemed to weaken recently.

According to the survey made by CCFGroup, downstream demand improved weakly recently but most were seasonal orders. The recovery of operating rate and orders on downstream market was worse than past years. Price of grey fabrics met resistance in rising without support from demand. Most plants held grey fabric prices stable or only slightly raised price. The losses based on spot raw material prices expanded. Downstream buyers were inactive in purchasing raw materials under current price.

Downstream demand is expected to have space to improve later, but we expect demand may be not good during the traditional peak season (Mar-Apr). Orders focus on export orders in the first half of year. Domestic sales are mainly summer and spring orders and there are some autumn and winter ones. Domestic and export demand is anticipated to be impacted in the first half of this year. 

Exports of textiles and apparels may face big pressure of falling growth rate in 2022. It is mainly because of the following 2 reasons: firstly, the consumption is supposed to see descending growth rate from high level amid high inflation. Secondly, the recovery of textiles and apparels exports in Southeast Asia may again squeeze the share of China’s textile and apparel exports.

As for domestic sales of textiles and apparels, the spread of pandemic is worsening in some regions, disfavoring the consumption of spring apparels and constraining the sales window of spring apparels. In addition, as the inventory occupies capital, the wholesalers dare not prepare too many summer apparels. That means orders for summer fabrics will be hard to skyrocket. Stocks of textiles and apparels were higher than past years. The pressure from stocks and capital may be big later, which will restrict sales of spring apparels. Players may replenish smaller for autumn and winter orders in the first half of year compared with previous years when oil price is high and may face downside risk.

Demand for non-fibers, especially PET bottle chip, was good. China has complete polyester industrial integration. China-made polyester enjoys strong competitiveness in price and the stability of supply in the world if not considering tariff. Many links have been unprofitable especially amid soaring energy prices. Under such circumstance, such advantage becomes more obvious. Some overseas PET bottle chip units cut production with high production cost. Exports of China-made PET bottle chip enjoyed apparent advantage since the fourth quarter of 2021. Export orders for PET bottle chip were good in Q4 2021 and Q1 2022.

The whole polyester industrial chain is expected to encounter big pressure in the first half of 2022 with high oil price and cautious demand. The polyester polymerization rate may start falling from this week amid high operating rate, high cash flow and great losses in Q1. Polyester plants may face bigger pressure to cut production in Q2. If prices of raw materials continue falling later, polyester and downstream market may see worse status. The production curtailment of polyester companies may appear in advance and the strength will be bigger too.