Some thoughts on sequent polyester polymerization rate

At the beginning of April, Trump's announcement of the so-called "reciprocal tariffs" policy triggered significant turmoil in the capital markets. Concerns about demand have weighed heavily, leading to a sharp decline in crude oil commodities, with Brent crude briefly dipping below $60. Now, as these concerns begin to ease, the market is gradually entering a period of consolidation and observation. In terms of price, it seems that the low points have mostly been reflected; however, from an industrial standpoint, the market response may still be implemented gradually.

Given the broad impact of this tariff policy and the currently unlikely short-term resolution-whether in negotiations between Japan and the United States or between Europe and the United States-there are no visible outcomes available for the time being, especially with China and the United States not having initiated formal communications. Therefore, the impact on the industry is likely to extend for a longer period.

The polyester polymerization rate is expected to gradually decrease, which has essentially formed a consensus. On the other hand, in terms of rhythm, the decline in polymerization rate may still require a process.

There has been an increase in the operating rate of PET bottle chip producers and PSF plants, and there is currently little driving force for short-term reductions.

PET bottle chips are already on the exemption list for this round of tariff waves, and the recent sharp decline in raw material prices due to demand concerns has created a favorable low-price environment, leading to an increase in transaction volumes for PET bottle chips. Therefore, there is not too much pressure on the PET bottle chips market in the short term. However, considering that the operating rate of PET bottle chips has been already as high as 90%, after this temporary increase in transaction volume, it is anticipated that long-term, there will still be inventory accumulation pressure, which may lead to a gradual decline in operating rate. However, this is likely to occur over a longer period.

Although the PSF market is also facing concerns about weakening demand, for now, the operating rate of downstream spinners remain relatively stable. As for the inventory, PSF factories seem to manage their inventory better than polyester filament yarn mills. Thus, the adjustment in operating rate is likely to appear sometimes, but large-scaled production curtailment may not emerge.

In contrast, the theoretical pressure on PFY factories is quite substantial. Some factories have already begun or are planning to decrease production or undergo maintenance. Nonetheless, the negative feedback from demand could still be a gradual process. Currently, within the entire industry chain, downstream DTY and fabric manufacturing sectors are feeling the demand weakness most acutely, with the sharpest decline in operating rates. Additionally, many downstream plants have reported a high probability of taking time off during the May Day holiday (May 1-5). Based on current plans, reductions in polyester production seem to be gradually advancing in May, but large-scale concentrated reductions like it did during the pandemic is likely to appear.

On one hand, the impact of this tariff policy has indeed caused some downstream orders to be directly put on hold. However, it won't be like the pandemic, which completely wiped out demand. In the current stable supply-demand system throughout the industry chain, both domestic and foreign sales are still operating, albeit affected in terms of overall volume and confidence; the market has not come to a halt.

On the other hand, April and May may not necessarily represent the period of maximum stress for the industry chain. Although the significant turmoil in April has largely impacted market sentiment, it is still a traditional peak consumption season. Companies can still achieve a certain volume of shipments in April, and for some firms facing temporary pressure, there might even be considerations for low-price purchasing and stockpiling during this phase.

The real pressure may arise in the off-peak months of June and July. As pressures increase in April and May, companies may need to gradually reduce production to manage inventory. During certain periods, some may choose to take breaks, but it is unlikely they will completely shut down. However, as time goes on, if inventory pressures continue to mount, the corresponding financial strain will grow as well. If companies see their capital gradually depleting without signs of improvement, it might force more of them to temporarily suspend production.

Therefore, in terms of trends, the severe situation facing the demand side dictates that the polyester polymerization rate is likely to see a downward trend. However, this adjustment may not reach its lowest point within just a month. Considering that the challenges for real businesses are likely to develop progressively over the next few months, the polyester market may not yet be at its maximum pressure point. Thus, we are inclined to adjust the polyester polymerization rate estimates progressively. This does not imply an improved outlook for demand but rather reflects an expected adjustment in the pace of changes. The polyester polymerization rate is still anticipated to be low in long run.