Polyester market may open low after holiday amid collapsing crude oil

During the May Day holiday (May 1-5), the industry focus remained on the rapid decline in crude oil prices. From April 30 to May 2, WTI (June) fell by2.13 to $58.29 per barrel, while Brent (June) dropped by2.72 to $61.53 per barrel. On May 5 (Monday), WTI crude oil opened 3.7% lower, with the decline quickly widening to 5%. Brent crude oil opened 3.5% lower, and the drop subsequently expanded to 4.5%, approaching the low seen before April 9.

OPEC+ had originally planned to gradually and steadily phase out production cuts over 18 months starting in April. However, the current decision will restore nearly half of the production cuts (2.2 million barrels per day) in just three months.

The rapid decline in crude oil prices during the holiday has not yet been fully priced in for domestic petrochemical products due to the holiday factor. After the market reopens, prices may gap lower to follow the trend. In the short term, attention should be paid to the possibility of a rebound after crude oil prices test previous lows. In the medium to long term, vigilance is needed regarding potential parallel pressures-both the possible further production expansion by OPEC+ in June and the macroeconomic risks posed by the concentrated maturity of U.S. Treasury bonds, which could trigger a crisis.

During the holiday period, naphtha prices-the upstream component of polyester-followed crude oil downward. From April 30 to May 2,CFR Japan naphthafell by 14 to $558/ton; FOB Korea isomer-grade MX dropped by 9.5 to $638/ton, CIF Rotterdam MX declined by 11.25 to $722.25/ton, and FOB US Gulf MX plunged by 27.45 to $796.05/ton. Meanwhile, CFR China PX decreased by 7.67 to $748.33/ton, FOB Rotterdam PX fell by 6 to $760/ton, and FOB US Gulf PX reduced by 7.67 to $804.08/ton.

Before the May Day holiday, the inventory of PFY was significantly transferred impacted by growing sales. Market players' expectation in the May polyester polymerization rate rises greatly. Therefore, the crude oil price decreased before the holiday while the prices of polyester feedstock was firm or moved up. The processing spread of differed sectors apparently improved, especially PX and PTA. The PX-naphtha spread was at $161/mt on April 23 and rose to $190/mt on May 2, the level in early-April. The PTA-PX spread was at 257yuan/mt on April 23 and increased to 505yuan/mt on April 30, also close to the high level in early-April.

Given the weak crude oil environment, polyester feedstock prices are expected to open lower post-holiday, following the downward trend.

Before the May Day holiday, the processing spread of polyester products trended in the opposite direction to feedstock prices, showing a predominantly weak decline. Although speculative bottom-fishing demand emerged in late-April-particularly from downstream factories of PFY sector-leading to a rapid transfer of inventory burdens away from polyester producers, the overall market remained under pressure. The comprehensive inventory of POY and FDY dropped to below 20 days from above 30 days. The inventory of PSF plants fell to near 14 days from around 16 days. The inventory of PET bottle chip plants was still below 15 days. Currently, PFY, PSF and PET bottle chip plants do not face big inventory burden. If the demand is not smooth in May, the inventory which was transferred to downstream sector in end-April will return to upstream polyester plants again. The PET bottle chip plants who have large export proportion may see slightly smaller pressure than PFY and PSF factories.

Some DTY plants, polyester spun yarn mills and fabric mills shut down for the May Day holiday. Some polyester yarn mills in Fujian, Jiangxi and Hebei suspended production for 1-3 days and longer for 4-7 days. Few DTY plants started holiday. The holiday schedule of fabric mills was shorted than the expectation in mid-April, mainly for 2-3 days or 3-5 days. Post-holiday attention should focus on whether pre-holiday order negotiations will materialize. However, crude oil's decline during the holiday may lead to lower order prices and further delays in procurement decisions.

With collapsing crude oil price, the inventory of polyester plants and downstream producers may face depreciating risk again. As for the prices of PFY, PSF and PET bottle chip after the holiday, the price of PSF and PET bottle chip with futures may open lower in line with the crude oil and feedstock sectors. PFY prices may be stable. The processing spread of polyester products may recover.

Downstream buyers are likely to show limited buying interest with falling prices and focus on digesting feedstock prepared before the holiday. The PSF inventory in polyester yarn mills and the PFY inventory in DTY plants and fabric mills was both near half a month before the May Day holiday. The sales of PSF and PFY were bleak during the holiday and may continue for a short period after holiday.

The polyester polymerization rate is estimated to remain high in May and the pressure is expected to be extended into June.

The operation change of polyester products after the holiday includes: the restart of 750kt/year PET bottle chip unit from Sanfame; the turnaround of 250kt/year PSF unit and 250kt/year PFY plant from Jinlun; the restart of 500kt/year PFY plant from Rongsheng. The operation change of feedstock units after the holiday includes: PX Asia: the restart of 2.5 million tons/year from ZPC; Shenghong Refining plans to cut the run rate of the 4 million tons/year unit; One 190kt/year line of JXTG plans to shut down for turnaround in early-May. PTA sector, the restart of 3 million tons/year from Jiatong and 2.5 million tons/year from Hengli; the turnaround implementation of 1.5 million tons/year from FCFC and 2.5 million tons/year from Honggang. In terms of MEG market, Shell's 400kt/year unit plans to have maintenance; Xinjiang Tianye (Phase III) with 600kt/year of capacity plans to raise run rate and restart; Yanchang Petroleum's 100kt/year unit plans to restart.

Currently, based on maintenance schedules in the upstream sector and expectations of high polyester polymerization rate, the supply-demand balance for May is estimated as follows: PX-Demand remains weak, with a tight supply-demand balance. PTA- Significant inventory drawdowns expected. MEG-Moderate destocking anticipated. However, given the expanding processing spread on upstream sector, caution is warranted over whether planned maintenance cuts will be fully implemented amid high profitability, which could lead to adjustments in supply-demand expectations. Additionally, absolute price movements will depend on crude oil trends and macroeconomic risks.