Production contraction spreads to HC PSF and low-melting PSF

A deluge of news about production cut of HC virgin PSF and low-melting PSF come recently amid soft downstream demand and the stagnation of transportation caused by the outbreak of Covid-19 pandemic in China.

The operating rate of HC virgin PSF is expected to move down to 50% with some to shut down and some to reduce production later, and that of low-melting PSF may decline to 70% as some large plants plan to reduce production by a half with some plans in approval. In addition, some HC recycled PSF plants also planned to suspend production in recent days.

At present, PSF plants are in a tough situation.

1. High inventory

In the second half of Mar, the sales ratio of some plants only ranged in 20-40% and the inventory accumulated very quickly. That of HC virgin PSF mostly hiked to around 20 days and that of low-melting PSF around one month. That of HC re-PSF in Zhejiang mostly hovered around one month with lower at 20 days and higher at 45 days.

2. Virgin PSF has been at losses, while re-PSF stays around breakeven line

Especially low-melting PSF is experiencing more intense losses and the trade volume shrank largely as traders did not have profit room.

3. Concerns about the long last dull season

HC virgin PSF and low-melting PSF are both supplied excessively and the capacity expansion is still proceeding. At present, downstream yarn mills and traders are cautious to stock up under high crude oil price and bearish downstream demand. The market outlook is pessimistic in Apr and additionally, overall Q2 is also traditional slack season, so the market generally concerns about downstream demand.

Amid high crude oil price, some private HC virgin PSF plants which started up in recent years are more difficult to operate. In terms of low-melting PSF, the demand is saturated and the market has to look for new sources of demand. HC re-PSF met reduced consumption in Mar and is likely to tolerate the tight supply of raw materials.

Currently the only support may come from the easing of the pandemic in the near future. At that time, if downstream buyers purchase moderately, the pressure on some plants will be mitigated by transferring the inventory, but it may not last long. If the demand does not improve obviously, the production curtailment may be enhanced in Apr.