What has been happening in the polyester industry chain recently?

The continuous high prices of PX-naphtha spread this year are related to the weakness of naphtha and constantly high PTA O/R. Once either of these key supporting factors experiences an anomaly, PX prices will significantly decline, and PX-naphtha spread will follow suit. At the same time, why can PTA plants accept low processing spread and continue to operate at high rates? The reason is simple: several large PTA plants have integrated PX facilities, and PX-naphtha spread has generated significant profits. In this case, directly using PTA as a means to reduce PX-naphtha spread would be counterproductive. Additionally, low processing spread can facilitate industry reshuffling to some extent, which is actually beneficial for some major PTA plants. Therefore, in this sense, PTA's influence on PX is a natural outcome and not a misguided decision.

Secondly, there has been a shift towards an oversupply structure in the MEG market. Although the import proportion of MEG has decreased to around 30%, domestic polyester factories still need to import part of the MEG for production. Currently, the advantage of coal-based chemical plants, which account for 60% of the total capacity, is not significant, and these plants are operating at a relatively high rate. As a result, domestic production of MEG is high, leading to long-term high inventories at ports and limited price fluctuations. Thus, the long-term low prices of MEG, can be seen as a form of "lying flat."

Returning to the polyester sector, the distinct divergence this year lies between the recovery of fiber products and the compression of non-fiber sectors. Taking filament yarn and PET bottle chip as representative products, the newly added capacity for filament yarn is similar to that of PET bottle chip, but due to the significant difference in base between the two, the PET bottle chip industry faces greater supply and demand pressure.

Therefore, after the new capacity was put into operation, PET bottle chip factories experienced a significant compression in processing spread at the end of the second quarter, while filament yarn products performed relatively better in terms of processing spread. Moreover, although there is a substantial increase in new polyester capacity this year, with the relaxation of control policies, overall end-user plants operation and replenishment are better than the same period last year. Although the recovery intensity may not meet expectations, there is resilient demand, often resulting in intermittent large-volume transactions. From this perspective, polyester factories still have strong demand for essential orders, and overall inventory pressure is not significant. Therefore, maintaining high operating rates is reasonable, even though controlling price fluctuations is challenging as they closely follow raw material cost fluctuations. Hence, "sitting back and watching the upstream game" may be an involuntary choice for polyester factories.

As for the end-user sector, the comprehensive inventory in the textile sector is lower than expected this year, and the restocking pace is slightly later than usual. The expected factor of high-temperature power restriction did not occur, and the data for social electricity consumption has also been underwhelming. However, based on expectations of strong demand during the peak season, downstream textile companies still have restocking demand for raw materials, particularly evident in preparations for autumn and winter fabrics. This indicates that the textile industry has positive expectations for demand recovery this year. The non-fiber end-user sector, such as beverage, food, and fresh packaging, have shown good recovery momentum this year. In particular, the purchase data for beverages has witnessed substantial growth for many brands in the first half of the year. However, due to the predominant focus on destocking during the initial sales period, the demand for PET bottle chip by the beverage and bottled water industries in the first half of the year was relatively average. Nevertheless, since the summer season, there has been periodic demand for spontaneous replenishment.

In summary, from top to bottom, the PTA segment seems to have become caught in the middle. On the one hand, there was hope that polyester and downstream end-user markets would reduce the burden on PX, but this doesn't seem to be effective as polyester factories continue to operate at high rates, with only a few instances of production reduction. On the other hand, it was discovered that the main reasons for the recent decline in PX prices were active selling by major PTA plants and the spread of news regarding PTA plant reductions and shutdowns. As for the future, the game between PTA and PX, the premature "farewell" of MEG, and the passive "watching" of the polyester industry may all continue.