How long will buoyant polyester downstream market last?

Recently, stocks of fabric kept declining substantially, almost close to the level at the same period of 2020. Some fabric mills were even reluctant to undersell. Actually, fabric mills saw higher feedstock inventory, rising price, higher processing fee and increasing operating rate now. Meanwhile, PFY plants, especially DTY producers, also saw reducing stocks, advancing price and higher processing fee. PFY market seemed to return to its prosperous cycle.

Reducing inventory and expanding processing fee of the PFY and downstream industry was caused by periodically tight supply. Falling stocks were mainly due to the regulation of energy consumption. As for rising price of the whole polyester market, it was mainly benefitted from substantially increasing prices of crude oil, coal and natural gas etc., which could be described as cost-driven rise.

Good PFY and downstream markets were mainly because supply decreased amid the regulation of energy consumption while demand improved on the month during the traditional peak season in Sep-Oct. PFY and downstream producers saw“prosperous”performance with reducing stocks and expanding processing fee while such prosperity may not last long based on the following reasons:

Firstly, from the perspective of demand, the best time has been passed on textile and apparel market. Domestic demand recovered in 2021 but overall demand presented modest impacted by the pandemic and falling consumption. Domestic retail sales of textiles and apparels only increased by 1.6% in Jan-Aug, 2021 compared with 2019 (the growth rate was at 2.9% in 2019). Consumption of apparels declined by 10% compared with 2020 during the National Day holiday. The cumulative growth rate may tend to fall later. Export was largely good this year while may gradually reduce as the best time has been passed as the high consumption of textiles and apparels started falling in US, export of textiles and China saw falling growth rate while Southeast Asia witnessed recovering growth rate, and the proportion of China in imported textiles and apparels market apparently declined in US.

Secondly, domestic demand improved apparently on the month but was not very good, which may not last long. Buyers in Guangzhou and Nantong started replenishing amid the control of energy consumption and growing domestic demand. Fabric mills saw rapidly declining inventory. Current orders have returned to the level in 2019 but were lower than that in 2020. Domestic demand focused on orders for the online shopping spree in Nov. The moderate orders may only continue into the end of Oct or the beginning of Nov. Domestic demand is supposed to be thinner in Nov-Dec and it is suggested to pay attention to the export orders for spring wear in 2022. Whether falling sea freight will favor export orders? But it may deserve not much anticipation.

Additionally, supply reduced as many plants were forced to cut production amid the regulation of energy consumption. With rising profit and falling stocks, downstream supply had big resilience, which should pay attention to the alleviation of Dual Control on energy consumption. The downstream market of polyester and cotton industries presented diversified appearances. Polyester and its downstream market witnessed apparently decreasing stocks. Downstream buyers were active in chasing up. However, cotton value chain continued seeing higher stocks despite of weaker regulation of energy consumption and buyers were inactive in following the uptrend. The regulation of energy consumption remained strict now but has been eased marginally. The operation rate of downstream plants changed substantially while has ascended greatly compared with late-Sep. Supply shrinkage gradually has made up. Demand may weaken again in Nov-Dec and overall market may witness mounting stocks and narrowing profit.

All in all, with increasing energy price and on the back of the Dual Control of energy consumption, higher cost and profit were transferred to the next sector since Sep on the polyester value chain. The processing fee of polyester products and grey fabrics and the printing and dyeing fee moved up, as well as post-finishing fee. It is fabric purchasers who finally pay for it. In long run, rising cost is supposed to be a tendency amid the Dual Control of energy consumption and the increment may be big in short run. Whether downstream buyers will buy in Nov-Dec still needs further observation. The operating rate of DTY units, fabric mills and printing and dyeing plants may be stabilized at 50-60%, 60-70% and 70% respectively in the second half of Oct in Zhejiang and Jiangsu, which may be steady-to-higher in the following months if the regulation of energy consumption sustains.