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Polyester: medium inventory and improving demand on downstream industrial chain

2023-08-31 09:47:47 CCFGroup

Recently, CCFGroup visited and investigated the downstream industrial chain of polyester market in Jiangsu, Zhejiang and Shanghai, involving garment enterprises, printing and dyeing enterprises, fabric traders, export enterprises, fabric manufacturing enterprises and other links, and now the investigation result is summarized as following.

Company type	Performance
Clothing wholesale market	Since early-Aug, the arrivals of new clothes for autumn and winter started in some merchants of major clothing wholesale markets, and the number of customers and delivery volume of autumn and winter clothes began to increase gradually.
Domestically-oriented clothing enterprises	These enterprises mainly supply to domestic brand clothing and e-commerce. At present, the production of summer clothing has been completed, and the proofing and small-batch production of autumn and winter clothing has begun. A clothing enterprise in Shaoxing, Zhejiang reflected that the production of fabrics for sweater has been completely shifted to 100% polyester fabric in the second half of 2023 from polyester/cotton fabrics previously. The reason is the consumption degradation on end-user market and they have to reduce the fabric cost. The cost of 100% polyester fabric can be reduced by 30-40% compared with that of polyester/cotton fabric. However, due to the uncertainty of domestic sales in the second half of 2023, the advanced replenishment for autumn and winter may be reduced and most will have fast production based on demand. The advantage of doing so is that it can reduce the risk of inventory pressure, the disadvantage is that when the demand comes, there may be no time to produce.
Export-oriented clothing enterprises	This year's clothing exports to Europe and the United States performed bad, but exports to the Middle East, Russia and other countries were moderate. In the long run, garment export pressure will continue to exist, especially the low profit state will remain. A clothing enterprise in Shanghai reflected that they have been processing overseas brand clothing production. Customers require 3 years to reduce China exposure. That is, the clothing orders to China are only allowed to sell in China, no longer export. Domestic apparel enterprises can only put more energy on the development of other countries outside Europe and the United States. Although orders from these markets exist, the price and profit are often relatively low. In the short term, it is expected that overseas clothing brands will place orders for autumn and winter near end-Aug.
Fabric traders	Contrary to previous expectations, the inventory of fabric traders surveyed was not high compared with previous years. A medium-sized fabric trader in Shengze reflected that due to cautious peak season expectation in later period, its stock volume reduced by 20-30% compared with previous years. A fabric trader in Shaoxing reported that the current stock volume was flat compared with previous years. Generally speaking, as price of fabrics is hard to rise in 2023, the profit is low, the capital needing to be recouped is large and there is uncertainty in which autumn and winter fabric will be hot later, most fabric traders are cautious in restocking.
Printing and dyeing enterprises	Shengze and Shaoxing are the two printing and dyeing centers. Recently, the operating rate showed signals to slightly rise and some dyeing plants reflected that orders for autumn and winter fabrics have started increasing, especially orders for polyester fabrics. In addition, some customers prepare goods in advance considering the possible production restriction because of the Asian Games. However, the dyeing fees of printing and dyeing enterprises are still low. The dyeing fees rose in the first half of the year but fell in May-Jul due to decreasing orders in off-season. Recently, although business has improved slightly in some companies, the dyeing fee is still difficult to rise.
Fabric manufacturing enterprises	The operating rate of fabric mills is high even during the traditional off-season. The inventory is flat compared with the same period of past years, but the performance is diversified. The inventory of warp knitted fabrics is large in Changshu and the stocks are medium in Wujiang, Changxing and Haining. Price of grey fabrics slightly rises but most plants see meager losses. Some fabric mills in Wujiang and circular knitting plants in Shaoxing reflected to see slightly rising orders for autumn and winter, but the profit is low.
Polyester enterprises	At present, the inventory of polyester POY and FDY is medium-to-low. After PTA price fell, the profit of polyester products apparently improves, especially PET fiber chip and PFY. Some PFY and PET fiber chip plants cut production previously due to the feedstock cost pressure and they are likely to ramp up run rate later.

There are three other noteworthy circumstances

1. At the end of 2021, the Biden administration signed the so-called Uyghur Forced Labor Prevention Act. The bill comes into force on June 21, 2022. Some customer expressed that from the second half of 2022, cotton fabrics and clothing exports were significantly affected, but polyester fabrics and clothing exports was increasing.

2. According to the feedback of a garment export enterprise in Shaoxing, the business of garment export to South America was very good in the first half of 2023. At present, the order has been arranged to the end of the year. All the garments were previously made of polyester and cotton and this year all adopt polyester + spandex as raw material, and the effect of exchanging price for sales volume is relatively good.

3. According to the feedback from the raw and auxiliary materials procurement department of an Indian head luggage company in China, the sales volume of their luggage accounts for 50-60% of the Indian market share. At present, there are luggage manufacturers in India, Bangladesh and China. It expressed that the purchase volume of raw materials and auxiliary materials increased significantly in the first half of the year, and even completed the tasks of the whole year in previous years. At the same time, they also said that they purchased raw materials and auxiliary materials according to orders and did not speculate. So is the consumer demand in India really good?

Summary

The investigation shows that the comprehensive inventory of polyester sector + fabric manufacturing field + fabric trader sector + clothing field is lower than expected, and the overall inventory is medium compared with the same period of previous years. The production of apparels is during seasonal adjustment period now. Apparel wholesales market and apparel producers have started preparing the autumn and winter apparels, and some printing and dyeing plants in Shengze and Shaoxing have seen growing orders for autumn and winter fabrics, which indicates that the end-user demand shows signals to improve. Later demand improvement is estimated to a step-by-step process. The autumn and winter orders are expected to be placed intensively after Sep. As domestic demand pursues the form of "quick reaction," it is expected that the demand peak may be in early-Oct in the second half of the year. Of course, market players will be uncertain in the so-called "peak season" can reach what level, but the polyester fiber with high cost performance will continue to be favored by the market.

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