Has the polyester polymerization rate touched bottom?

The production curtailment has been a hot topic on the market for long and polyester enterprises really started scaling down production in Apr.

Many downstream plants shut down for the Tomb-sweeping Festival (Apr 3-5) and did not resume operation after holiday due to more strict COVID restriction. The operating rate of fabric mills and DTY pants even decreased further. The logistics were blocked amid the pandemic restriction and exerted more effect on the market. As a result, polyester units also greatly slashed production.

Players wondered whether the polymerization rate would be lower than 90% in early-Apr, while it has reduced to 78.4% by Apr 18, lower than that during the Spring Festival holiday.

Some players had questions in mind: Have the polyester polymerization rate touched bottom?  Will the polyester polymerization rate start increasing later?

The inventory and profit issue are one of the reasons for production curtailment.

PFY plants have faced inventory burden for several months. Inventory does show signals to reduce in Apr and even keep refreshing new high. As for profit, PFY producers have seen heavy losses in Apr.

Factories showed patience in waiting before but their mindset was apparently dragged down in Apr, which was supposed to be a peak season in textile industry, with ongoing weaker market atmosphere.

This time, the most direct and important reason for the production reduction is the COVID issue.

Except for the effect on demand, the impact on the logistics is more direct. The reregulation has been intensified since the Tomb-sweeping Festival due to the worse spread of pandemic. Many enterprises in Haining and Shaoxing from Zhejiang and Taicang from Jiangsu suspended production due to COVID restriction. Some plants could not sell as the delivery of products was unavailable and some failed to produce when the raw materials could not be transported. Therefore, many units were forced to shut down temporarily.

Thus, whether and when the polyester polymerization rate will start rising mainly depending on the control of pandemic.  According to the survey made by CCFGroup, some polyester enterprises expressed that they may have the risk to suspend production if supply of raw materials is unavailable later, which has been low now. From this angle, it is hard to assert the lowest polyester polymerization rate has appeared.

If the pandemic is controlled rapidly and the logistics resume normal, players of the whole industrial chain may need to replenish with low feedstock inventory at hand. Stocks may reduce by that time. Actually, some downstream plants have restocked after polyester plants cut more production recently. PSF and PFY plants begin to curb price from falling after production slashed, especially PSF. Stocks and profit of PSF plants both show signals to stabilize recently.

However, the spread of COVID-19 pandemic still has a big uncertainty and is complicated, not for the enterprise to decide. From this perspective, players may need more patience to wait for the signals that market will stabilize.

The operating rate is really important for observation, which is likely to be the signal for warmer market in later period.