Investigation summary of polyester downstream market: does power rationing start?

Recently, prices of commodities and futures climbed up. The increment of PTA was especially large when some units slashed run rate and the polyester polymerization rate was high, supportive to demand. After polyester feedstock cost advanced, the price of PFY also chased up but the increment was smaller than that of PTA. From Jul 7 to Jun 12, price of PFY has increased by near 250yuan/mt and the profit shrank than before. After on-site investigation of the operation of polyester downstream markets after raw material price increased in Zhejiang and Jiangsu, some noteworthy conclusions are made as following:

1. After prices of raw materials rose, inquiries for grey fabrics grew. Sales of grey fabrics under low price improved, especially in Haining. The sales of fabrics may enjoy bullish support in short run.

2. Most DTY plants and fabric mills have restocked PFY on Jul 7-8 and had inventory at hand. The PFY stocks of some companies with solid capital can guarantee production until end-Jul/Mid-Aug, even into Sep, and most can ensure production near Jul 20-25.

3. After feedstock price increased, most downstream buyers focus on digesting PFY prepared before and purchase to cover the pressing demand periodically. Current average feedstock cost is not high on the whole. Downstream buyers do not show high resistance to the price uplift on raw material market for the time being, with far lower resistance compared with late-Apr when DTY plants and fabric mills suffered heavy losses at that time due to soaring feedstock price. As for the operating rate of downstream plants, it may not reduce much and in a large scale in short term because of losses and stagnated sales. However, due to the power rationing, lower working efficiency of workers under heat temperature and tight capital, some companies may slightly slash operating rate.

4. Sales of grey fabrics increase under low price but price of grey fabrics is hard to advance. Factories in Haining who see good business also face this problem. Therefore, in long run, if feedstock price continues to rise, the profit of downstream plants bound to be squeezed further and plants may even see bigger losses, and they may resist more on the price uplift on feedstock market.

5. Many fabric mills and fabric traders hold some expectation toward the peak season and expect sales and orders to apparently grow during the peak season. However, most hold cautious attitude toward the price increment. They think sales are likely to improve but the price and profit is expected to be not high.

6. Downstream market is not dull during the traditional off-season in Jun-Jul. Fabric traders dare replenish and fabric mills are willing to hoard up inventory are mainly because of the following reasons: firstly, they have expectation toward the peak season in Sep-Oct. Secondly, feedstock price was low previously and the inventory may not be depreciated later. Thirdly, they worry the production may be affected by the summer power rationing and the Asian Games in Hangzhou, Zhejiang. However, after prices of raw materials climbed up recently, the expectation of low depreciation risk of inventory is fading.

7. Binhai, Shaoxing has announced power rationing policy. Some parks will be required to lower operating rate for one day a week by turns. Companies in Taicang also received the notice to have power rationing later but the specific arrangement has not been confirmed. Enterprises in Haining will also face power rationing but there is no notice for specific measures for the time being. Market players expect the power rationing to be weaker than previous years in 2023. The specific implementation will be traced later.

8. The capital recouping is apparently prolonged on downstream market this year. The payment days are extended to three months or above from one month in past years. Sales of grey fabrics under low price grow recently, but most orders are concluded under credit or only 30% of deposit is paid. Under such circumstance, downstream plants encounter tight capital now. Some companies with solid strength also need to rely on supply chain support or bank loan to replenish raw materials.