Key summaries of on-site investigation of polyester and downstream factories in Zhejiang and Jiangsu

CCFGroup had an on-site investigation on polyester and downstream factories in Zhejiang and Jiangsu on May 9-10, 2023, covering polyester enterprises, DTY plants, fabric mills, fabric exporters and PFY traders. The followings are some key summaries for this investigation.

1. DTY plants and fabric mills see recovering losses and the run rate rapidly increases after the May Day holiday, higher than the pre-holiday level

According to the data from CCFGroup, the operating rate of fabric mills and DTY plants was at 84% and 71% respectively in end-Mar and slightly declined to around 50% during the May Day holiday. After the May Day holiday, the status of DTY and fabric manufacturing market did not change. Price of PFY gradually dropped after PX and PTA prices reduced. According to the price of PFY in end-Apr, DTY plants and fabric mills has witnessed recovering cash flow based on spot feedstock prices, and some even were above the break-even line or saw minor profit. Under such circumstance, some downstream buyers intensively purchased in end-Apr/early-May and they showed apparently higher production activity over Apr. The operating rate of DTY plants and fabric mills rose to 70% and 65% after the May Day holiday.

2. Some DTY plants, fabric mills and traders expect price to reduce while most think the price to be in correction

With high PTA price and heavy losses, many downstream plants presented obvious intention to cut or suspend production in Apr and held bearish view toward the price of PFY and feedstock. After feedstock price dropped, the risk was released. Downstream players did not show obviously bearish view now and most expect price to be in range bound, with limited downward space but hard to rise too. Bearing such mindset, futures rallied after the May Day holiday and PFY plants did not increase discounting, while some downstream buyers still restocked. Most PFY producers and traders retreated to sideline as price does not show signals to increase.

3. Downstream orders fail to improve temporarily during the off-season, while some restock in advance for speculation

Water-jet mills in Wujiang and Changxing are still during off-season, with apparently falling sales volume, and the dull season is anticipated to sustain in short run. Circular knitting plants in Shaoxing and warp knitting mills in Changshu also do not witness better business. Only some top warp knitting plants in Haining have moderately increasing orders as some buyers hold expectation toward the demand in the second half of year and PFY price has fallen. Small and medium sized companies still have insufficient orders. Some fabric exporters reflected that the export was moderate in Jan-Apr. Although orders from Europe and US fell, the border trade was good, offsetting the reduction from Europe and US. However, export orders start weakening from May.

4. Sales are moderate in PFY companies recently and the expectation of mounting inventory weakens in short run. Meanwhile, the cash flow improves. The polyester polymerization rate is estimated to stabilize and rise slightly

PFY companies discounted for promotion in end-Apr. Some downstream buyers intensively restocked with restoring cash flow based on spot feedstock price. Oil price decreased at first and then increased in early-May. Downstream players present better mindset and some continue replenishing even when polyester companies do not increase discounting. In general, sales of PFY are better than anticipated after the May Day holiday. The inventory of PFY is less expected to increase in short run. Coupled with growing profit, some polyester companies are likely to ramp up run rate.