Polyester market operation during LNY and post-holiday outlook

1. The changes of the petrochemicals during the Spring Festival holiday

Tensions in the Middle East pushed up oil prices during the Lunar New Year (LNY for short). As of Feb 16, WTI and Brent crude oil futures were up $5.33/bbl and $4.26/bbl respectively, up 7.2% and 5.4% compared with the closing price on Feb 7.Driven by the rise in crude oil, petrochemical products have risen to varying degrees.

2. Production resumption of downstream market

Downstream companies have successively restarted operation from Feb 17. Most DTY plants resume operation between Feb 17 and Feb 24. Most dyeing plants will restart production after Feb 20. The average holiday schedule of downstream plants was near 20-25 days during this Spring Festival, not short.

As it still takes time to see non-local workers come to work, the operating rate of downstream plants will not become normal until after the Lantern Festival (Feb 24).The operating rate of downstream plants is expected to return to 70% by end-Feb and that of DTY plants may increase to 80-90%. After market recovers further in early-Mar, the operating rate of downstream plants is expected to increase further.  The operating rate of fabric mills is likely to be as high as 80% by that time and that of DTY plants may rise to around 95%.

3. Expectation of downstream orders after Spring Festival

Why were textile companies busy before the Spring Festival (Feb 10)? One reason was that the Chinese New Year fell later this year, and normal production and work resumption will not happen until the end of February. By that time, spring clothing will be widely released, and the production of summer clothing will enter a full-scale phase. Therefore, it was necessary to place advance orders for spring and summer domestic sales before the Chinese New Year. Another main reason was the recovery of foreign trade orders, with a significant portion of these orders possibly coming from advance orders during the month of Ramadan.

Compared with the same period in 2023, it is believed that there is a possibility of weakening demand after 2024 Spring Festival. First of all, the release of the backlog of demand weakens, including hotel renovation, wedding demand and so on. Secondly, the completed area of real estate has reduced significantly, resulting in a weakening of demand for home textiles and home decoration in the post-cycle. Once again, India's BIS certification has not yet made further progress. Coupled with the shipping market interference brought about by the Red Sea crisis, the PFY exports have failed to continue the high growth in recent months. Finally, with late Spring Festival this year, some orders are mainly orders for Ramadan and the pulled-forward of some domestic orders. Therefore, it is suggested not too optimistic in downstream orders after Spring Festival.

It is impossible to be pessimistic too as the overall view should be neutral. Inventory of grey fabrics in downstream plants and the inventory of textiles and apparels is healthy. The actual demand is anticipated to reduce in the first half of 2024, and the replenishment demand is crucial. Replenishment demand may be continued at least in the first half of 2024. For example, fabric mills may keep running at high capacity at first and hoard up stocks even with modest orders. Fabric traders may also replenish to see better market status.

According to the survey of downstream market, orders present modest and do not exceed expectation, which should be noted later.

4. Price and inventory change during Spring Festival and post-holiday forecast

Most polyester companies suspended sales from Feb 10 to Feb 14 during the Spring Festival holiday and gradually resumed selling from Feb 15 to Feb 17, while sales remained meager. The average inventory of PFY was expected to increase by 5-6 days. The comprehensive inventory of POY and FDY was anticipated to be 18-19 days. Mainstream polyester enterprises raised price on the first restarting day after holiday, with increment of POY and DTY/FDY at 100yuan/mt and 50-100yuan/mt respectively.

PFY stocks of downstream plants were above 20 days before Spring Festival holiday, flatting with 2023. If downstream plants resume normal production after Feb 24, the PFY stocks can theoretically guarantee production near mid-Mar. Polyester companies may face some selling pressure before end-Feb and the inventory is likely to increase further.

The inventory of polyester market may reduce in Mar supported by high operating rate on downstream market, but it will take some time, maybe one month or two months. Downstream actual orders and the speculation of feedstock should be concerned. In general, polyester companies are expected to face some pressure after Spring Festival holiday. However, in long run, as new PFY capacity is not large in 2024, destocking is not worrying, which is only a time issue.

5. Polyester polymerization rate before and after Spring Festival

The lowest polyester polymerization rate was around 79% before Spring Festival and it may recover to around 89% in end-Feb after some plants successively restarted operation from mid-Feb and production resumption peak may appear in late-Feb. The specific data depends on the restart of polyester companies. Polyester companies may see high inventory and high run rate in early-Mar.

The polyester polymerization rate is expected to be averaged at 83.9% in Feb, which may rise to around 90% in Mar if downstream plants' operating rate can resume high and is likely to slightly rise to 91% in Apr.

There are some uncertainties in the polyester polymerization rate in May-Jul and there are two points noteworthy: firstly, the destocking of PFY companies in Mar-Apr. The stocks are supposed to reduce effectively theoretically during the traditional peak season and hard to fall during the off-season. Otherwise, the polyester polymerization rate will be dragged down. If downstream demand is worse than anticipated, the inventory may accumulate rapidly, which will also pose pressure on the high operating rate on downstream sector. Secondly, the operating rate of PET bottle chip plants may not face big pressure to fall in Q1 2024 supported by moderate orders, while it may encounter downward pressure in Q2.