Polyester terminal operating rate may start rising

The operating rate of DTY plants and fabric mills in Zhejiang and Jiangsu has apparently dropped since Apr when the spread of pandemic was serious in some regions and the logistics were restricted due to stricter regulation. By Apr 14, the operating rate of fabric mills in Zhejiang and Jiangsu decreased to 37%, hitting yearly low, lower than the same period of 2020.

Chinese government has taken many measures to ensure smooth logistics and stable supply chain. Meanwhile, the pandemic prevention and control has been effective in some major textile bases in Haining and Keqiao from Zhejiang and Suqian from Jiangsu. Enterprises gradually resumed production. However, the spread of pandemic remains austere in Shanghai , and Taicang and Zhangjiagang in Jiangsu, which should be concerned.

With eased spread of pandemic and smoother logistics, the operating rate of fabric mills is expected to obviously recover this week but will be diversified among different regions. If the epidemic situation in China is gradually improving later, the operating rate of fabric mills is supposed to start rising but may reduce at first with the coming of May Day holiday (Apr 30-May 4).

In early-Apr, leading polyester companies started cutting production to curb price from falling. The profit of polyester products improves recently, especially PFY. However, stocks of polyester products still shiver at high level. PET bottle chip plants raise run rate when the transportation of raw material becomes smooth, while PFY and PSF plants do not have the conditions to raise run rate, and some even scale down output. The polyester polymerization rate is estimated to consolidate at low level in short run.

Destocking will be the basic foundation for the raise of polyester polymerization rate, which will depend on the release of speculative demand in short run and rely on the increase of downstream operating rate in long run, at least stabilized above 60%. We expect the polyester polymerization rate will not recover until after the May Day holiday, at least.

In general, the operating rate of downstream fabric mills may start rising with better controlled pandemic and smoother logistics, while the raise of polyester polymerization rate is still likely to need to wait. As May and Jun are traditional slack season, the recovery of downstream orders may be smaller than that of run rate. Therefore, downstream market is still estimated to see inadequate orders and pressure from inventory and profit, which will dampen the upward durability and strength of the polyester polymerization rate.