PSF and cotton: the same start, but forked in late Apr

Before the Chinese Lunar New Year holiday, cotton and PSF prices moved up quickly with the expectations of improved demand after the holiday. After the holiday, downstream orders were not good as anticipated, and both cotton and PSF prices declined. In Mar, commodity market weakened affected by the banking system issue and cotton and PSF prices stepped lower.

In late Mar, PSF prices climbed up first, and the market returned to the fundamental after the banking problem was solved temporarily. Feedstock supply was tight with the maintenance of PX and PTA units, and PSF prices went up quickly following higher feedstock market, but in mid to late Apr, polyester products witnessed larger losses and more plants cut production, so the demand for PTA was expected to reduce and at the same time, oil prices started to drop, so PSF prices fluctuated downward. During May Day holiday, with the further banking problems and fears of recession, oil prices slumped and PSF prices followed lower.

But for cotton, since Apr, the market was under the speculation of new cotton planting areas, harvest-rush of seed cotton in the second half year, the weather condition in Xinjiang and the target price of Xinjiang cotton. Meanwhile, under the influencing factor of weather, cotton prices sustained rising in early May.

Both cotton and PSF is launched on the futures market, with the same financial feature and the influence from macro environment.

In addition, cotton market has more uncontrollable factors than PSF. Cotton is an agricultural crop, and the natural environment and policies have a greater impact on the market; PSF is an industrial product, especially with overcapacity, so the fundamental information has a more direct impact on the market.

Besides, the downstream market of cotton and PSF is yarn and fabric, and the condition of downstream market also affects the feedstock market.

Since the beginning of this year, cotton yarn sales have been relatively good overall, and currently, the product inventory remains below 15 days. However, polyester yarn inventory keeps accumulating, and inventory has reached above one month in end Apr. The low cotton yarn inventory gives certain support to cotton market, but the high inventory of polyester yarn drags down PSF market.

In 2023, cotton and PSF markets have a similar start, but go differently in late Apr. With the continual higher price spread, let’s see whether there is qualitative change.