How much will polyester polymerization rate descend in Jun?

Some large PFY and PET fiber chip plants scaled down production in the first half of May, dragging down polyester polymerization rate, while the overall run rate recovered again after some units resumed from turnaround in late-May. 

Some PSF plants announced to curtail production or start turnaround later. Hengyi also plans to cut production further. Under such circumstance, polyester polymerization rate tends to fall again. If more plants scale down production later, the theoretical polyester polymerization rate may reduce to near 90%. 

This round of production cut is basically consistent with expectation as polyester plants continued seeing strong cost but weak demand and production curtailment is actually in a gradual way. 

Firm cost: price of crude oil kept strong. Economy restored in Europe and US and players held anticipation toward the sequent travel and consumption, strongly supportive to the market fundamentals of crude oil. In addition, the USD dollar weakened and inflation is expected to continue, which also supported oil price. As for polyester feedstock market, supply of spot PTA and MEG sustained tight, especially PTA, although new units of PTA and MEG are expected to start operation. It triggered production cut in polyester enterprises to a certain extent. 

Feeble demand: PFY plants raised price the day after price being discounted, while downstream buyers still replenished cooperatively. However, weakness dominated market after observing the performance in recent period. The final PFY price actually headed south no matter price of feedstock price increased or not, while the fluctuation range was not big. In addition, profit of PSF, PFY and PET bottle chip all shrank despite of different customer groups. 

Why did sales seem to be good amid price promotion every time? It is necessary to look at downstream market. DTY plants saw better situation than fabric mills based on better sales of POY than FDY and the reflection of enterprises. Taking DTY plants as an example, DTY makers witnessed shrinking spot price gap year to date and most was unprofitable now. They would see profit only based on the discounted PFY price. Therefore, downstream plants were forced to purchase actively only to keep running, rather than due to good business. 

The situation of May is likely to extend into Jun. Profit of the whole industrial chain is expected to be squeezed further due to weaker demand. The acceptance of polyester enterprises and downstream plants should be noted. However, it may remain a gradual movement, not ruling out some repetition. Some plants still do not confirm the specific time for production cut and some plants may resume operation. Only when many direct-spun PFY makers curtail production will polyester polymerization rate reduce prominently. Whether downstream plants will reduce run rate in a large scale should be the most critical concern in short run. 

Whether there are buying opportunity or orders near the Dragon Boat Festival (Jun 12-14) and if there are more production limit measures are the focus for downstream players. 

According to the latest news, from P.M.6:00 of May 31, 2021, jet weaving enterprises in Shengze would stop production according to the evaluation of resource intensive utilization of industrial enterprises. Among them, type-A & B enterprises implemented the production limit measures of halting production and reducing emissions both by 30%, and Type-C&D and unrated enterprises implemented the production limit measures of suspending production and reducing emissions both by 50%.

Some enterprises from Guangzhou, Foshan, Dongguan, Huizhou, Zhongshan and Chaozhou in Guangdong have got the notice to start limiting electricity consumption by "keeping running for 5 days and stopping production for 2 days". Government released energy consumption limit policy apparently earlier than past years. 

The implementation of policies on production limit posed pressure but also created a breathing space for some downstream enterprises.  Stocks of grey fabrics have kept accumulating in recent 3 months and were transferred to dyeing plants. Enterprises faced bigger pressure in recouping capital. For companies that saw unsmooth sales, it was a chance to digest inventory at hand. 

Rigid demand tends to dwindle if more production curtailment appeared in downstream market, which may force more polyester enterprises to cut production. 

All in all, polyester polymerization rate is anticipated to extend lower in Jun but it will be a gradual movement, likely to fluctuate near 90%. The influence of price, orders and especially the production limit policies on downstream mindset and run rate should be concerned.