Polyester production cut-offs may get restrained due to diverging profits ?

Polyester factories are cutting back production recently, and polymerization rate averaged at 88% Tuesday, down 6.3% from Q3 high of 94.3%, and dropping 6.7% from intra-year high of 94.7%. In Aug, polyester capacity is revised up to 65.54 million tons, up 5.2%, or about 3.41 million tons. Taking into account long-term shut plants, the theoretical loss of polyester production is about 7.14 million tons (the actual output reduction will be higher than this figure because the actual maximum O/R is higher than theoretical figure). Among them, PET bottle chip accounts for the largest proportion, followed by PSF. PFY plants operating rate has been rising all the way after the Spring Festival, and output cut back progress is slow. So far, about less than 3% the capacity is shut down.

Looking at Q3 output cut condition, PET bottle chip plants that announced turnaround plans generally closed, while PFY plants didn't carry out the plans as profit was good while stock kept low, hence polymerization rate maintained constantly high. The situation of new orders significantly reduces while factory delivery is relatively normal appears later in PFY industry than in PET bottle chip market. Therefore, in view of the recent announcement of the cut-off news, we believe that there will be a discount in implementation.

If polyester products profit enhances somewhat, or loss is not that severe, turnaround plans may not be as many as the announcement. Till Monday, processing fee of POY150D, FDY1537, semi-dull chip, PET bottle chip and PSF is at 1522, 1537, 387, 762 and 847yuan/mt. Overall, polyester products margin all increased modestly after feedstock price declined previously, particularly POY whose profit maintains well. So it is not very realistic to rely on this type of factory cut down much output.

Based on current polymerization rate, the theoretical operating rate of PTA plants is 76-77%, while PTA industry run is near 77.2%. Supply is balanced to loose as a whole. With PTA units gradually restarting, supply will become ample later on. Considering limited cut-offs in polyester products sector, PTA price may face some pressure to climb up, but it’s still in destocking path, and price may keep stable-to-strong as a whole. MEG fundamental is less supportive than PTA, with the expectation of ramping up supply, MEG price mainly fluctuate narrowly within low rates.

Overall, polyester raw materials may not likely to go volatile, and prices are expected to fluctuate within 6200-6400yuan/mt. According to the recent market situation, it is expected that there is a high probability that the processing fees of polyester products will be moderately improved in the future, and some of the turnaround plants will also be resume, hence we believe that the polymerization rate may stabilize after falling to around 87-88%.