Polyester downstream market confronting bigger pressure

Operating rate of DTY plants and fabric mills inched down in recent two weeks. According to the data from CCFGroup, the run rate of DTY plants decreased by 2 percentage points on the week to 77% by Jul 21 and that of fabric mills also descended by 2 percentage points on the week to 69% by Jul 20. The reduction was not big for the time being, but it still incarnated bigger pressure on downstream market.

Firstly, downstream plants encounter increasing cost pressure. Price of PFY rose by 400-500yuan/mt recently but downstream fabric price lacked upward momentum, mainly remaining stable. Some companies even undersold with pressure from inventory and capital. After earlier low-priced feedstock purchased in early-Jul being used up, the cost pressure will start appearing. Taking the super-soft spandex fabric as an example, it was sold under low price, but the losses were near 600-700yuan/mt or higher based on spot raw material price.

Secondly, downstream grey fabric inventory burden was widening. Operating rate of downstream plants remained high compared with the off-season in past years, which was mainly because of the following reasons: firstly, there is expectation toward peak season in Sep-Oct, especially toward domestic demand. Secondly, the worry of production loss due to the summer power rationing and the Asian Games. The Asian Games will be held from Sep 23 to end-Oct, just the golden period of peak season in the second half of 2023. Once the production is limited, the delivery of orders bounds to be impacted. Therefore, factories need to hoard up stocks in advance. Thirdly, the depreciation risk of finished goods may be small when the feedstock price fluctuates little. The losses are not heavy based on spot raw materials now. Downstream plants still insist on production. The profit change of downstream products should be noted.

The stocks of grey fabrics are accelerating mounting with ongoing high run rate but are controllable now. The performance differed in different regions. The stocks of warp knitted fabrics were especially high in Changshu and those of water-jet fabrics were medium in Changxing and Wujiang. Some fabric traders reflected that the stocks of fabric supermarket was high.

Finally, downstream players face especially tight capital. Export is not good in 2023 and players focus on domestic sales. Players also hold expectation toward the peak season on local market in the second half of year. However, domestic sales are mainly concluded under credit basis and the payment days are long. Many downstream fabric mills sold grey fabrics under low price but they meet difficulty in recouping capital, which ends up with tight capital. Some strong DTY plants and fabric mills also need to rely on supply chain fund or bank loans to restock raw material. Some plants with tight capital are forced to scale down run rate after they are unable to replenish raw material in time.

In general, downstream market is facing bigger pressure. The operating rate of downstream plants is reducing slightly. However, the contradiction is not fierce for the time being as players hold anticipation toward the peak season in H2 2023. The run rate of downstream plants may not plunge in short run.