Large destocking of polyester yarn beyond market’s expectation

In just four days from last Thursday to Sunday, polyester yarn market had undergone major changes, and large transactions of polyester yarn were made, depleting the inventory significantly in a short period. Yarn mills that had production cuts or suspension plans at the beginning of the week adjusted higher their operating rate by the weekend, which was a 180-degree turn in the eyes of market players.

This round of purchases were mainly made by traders, with downstream textile mills following moderately, Fujian and Jiangxi saw largest inventory depletion, Jiangsu and Zhejiang were slightly worse, while Hebei performed the worst. So why all of a sudden everyone was willing to purchase polyester yarn? The reasons were as follows. First of all, the epidemic prevention policies were adjusted. On December 7, the Joint Prevention and Control Mechanism of the State Council issued the "10 new measures" to optimize COVID-19 response. On December 8, multiple provinces and cities canceled nucleic acid testing, and no longer check digital health code, thus market confidence improved, and the willingness for restocking increased. Secondly, previously, whether it was traders or downstream weaving mills, raw material stocks were reduced to a low level. Yet, at present, the cumulative amount of textile mills was considerable. Last but not least, the price of polyester yarn itself had been in the two-year low. T32S was accessed at around 10,500yuan/mt, PSF was offered at 6,900-7,000yuan/mt in Fujian, (about 200yuan/mt higher than in Jiangsu and Zhejiang), polyester yarn processing fee was around 3,500-3,600yuan/mt, which suffered great loss. Even if PSF price falls back to 6,500yuan/mt in the future, there’s no risk for buyers. In a word, to purchase at the current price is quite safe. Besides, vortex-spun polyester yarn also saw large orders recently, and the price was at a low level in more than two years. In addition, the more applicable polyester yarn was also cheaper than other yarn varieties, and had better liquidity, making it a good choice for traders as a speculative product.

People may wonder why yarn mills sold in quantities at a loss-making price. Actually, it was a last resort for spinners. As the year end approached, the financial pressure of spinners increased. Thus, sales promotions before the Spring Festival were necessary in order to withdraw capitals, and the eased epidemic control policy was an opportunity. Yarn trades would undoubtedly face difficulty if the price was set high. After the large destocking, T32S was generally offered at 11,000yuan/mt or higher, yet even sales at 10,800 remained thin. Psf price in Fujian was 7,100yuan/mt, short-distance delivered (traded price), and the processing fee of polyester yarn was only 3,700yuan/mt. There were sporadic news about transactions concluded at 11,200-11,500yuan/mt in the market, which were too small in volume to reflect the overall market. Nevertheless, it still could be seen that the processing fee was yet to be improved despite the large restocking of polyester yarn. However, as yarn inventory fell to a low level, spinners were not rush to sell, so the market was in a stalemate by now, and the major participants in transactions were yarn mills with high inventory and low prices.

The large inventory depletion of polyester yarn in such a short period is unexpected for the market. Currently, the inventory has been transferred to traders and downstream textile mills, and the pre-holiday stocking of polyester yarn has basically completed. Pessimistically speaking, inventories are merely “transferred from left hand to the right hand”, and the real demand has not improved much. Nevertheless, the market is still looking forward to a recovery in demand after the epidemic deregulation next year. Regarding the suspension plans of spinners in several major production areas, most yarn mills in Fujian and Jiangxi originally planned to close at the end of this month or the beginning of next month. Yet, some of them currently planned to put off the close to mid-January, and others are still unclear. Many yarn mills in Jiangsu and Zhejiang provinces will still shut in advance. Given the previous epidemic control, the operation of spinners in Hebei has just recovered. Thus, the operating rates are diverged among local yarn mills, and the close will be relatively late.