Will production cut of polyester yarn continue after the sales improved? – ChinaTexnet.com
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Will production cut of polyester yarn continue after the sales improved?

2022-08-05 08:43:55 CCFGroup

The representatives of polyester yarn mills in Changle, Fujian held a meeting last Saturday, advocating to cut production by 50% in the context of plunging raw materials, rising inventory and great losses. In fact, over 90% of the spinners in major producing areas of polyester yarn in Fujian and Jiangxi had curtailed production, making overall run rate down from 68% to 51%. However, it is not enough for current sluggish market. Polyester yarn is mainly used for knitting in South China, so taking circular knitting as an example, the operating rate of circular knitting machines in Fujian and Guangdong is only 20-30%, and in Xiaoshan and Shaoxing, it is only 40%. It can be seen that polyester yarn supply now is much excessive for downstream use.




Along with the rebound of raw materials early this week, polyester yarn sales increased and the inventory declined to 24 days from 27 days. However, it is afraid not to sustain. Recent improvement in trade mainly lies in: 1. The inventory of raw materials in weavers is generally low. In early Jun, polyester yarn was driven up to 13,300yuan/mt by the rise of PX, but moved down smoothly to current 12,000yuan/mt, providing no appropriate opportunity for restocking. Meanwhile, downstream buying for rigid demand has sustained for over one month. 2. The raw materials rally. Since the US and Europe released CPI data on Jun 10, the concerns about economic recession has shadowed the market and bulk commodities quickly dropped in general. PSF slid from 9,300yuan/mt to 7,800yuan/mt until last Friday overnight. The spread between spot PSF and PSF futures also hit unprecedented 1,000yuan/mt. It is common to restock when meeting the rise of raw materials, so not only polyester yarn, PFY and PSF also saw increases of sales.


PSF fluctuated back again on Tuesday and Wednesday, weakening downstream buying interest. The sales of polyester yarn fell back and the cash flow moved to minus 300yuan/mt. Dragged by the poor demand, the improvement of sales could not last and even the losses are hard to be alleviated. After last Saturday’s meeting, polyester yarn mills did not lower run rate immediately and still produced according to their own tempo. On the one hand, the stabilization of raw materials was favorable to the sales of polyester yarn. On the other hand, with Aug coming, the demand is expected to improve marginally. According to CCFGroup, the largest production cut has passed and the operating rate in Jul is predicted at 48% at the lowest.




Compared with polyester yarn, polyester/cotton yarn is more paled. Most mills still hold 20,000yuan/mt cotton stocks. Currently, cotton price dropped close to 15,000yuan/mt and the cash flow of polyester/cotton yarn has turned positive, but in fact, the mills are still at significant losses. A large number of spinners in Shandong, Jiangsu, Hebei and Fujian cut production or shut down and the inventory generally reaches over one month, some more over two months. So the operating rate of polyester yarn will further move down. Under the background of bearish domestic demand and bans on Xinjiang cotton, apart from slump of raw materials, the mills producing cotton products are experiencing their “Darkest Hour”.