Polyester industrial chain: demand follow-up VS cost pressure with rapidly rising prices

On May 12, the joint statement of the China-US Geneva Economic and Trade Talks was released, which not only pushed up crude oil prices but also better repaired demand and confidence in the polyester industry.

From the perspective of various polyester products, sales showed differentiation. In the fiber segment, direct-spun PFY factories achieved a sales ratio exceeding 500% on Monday, and the comprehensive inventory of POY and FDY dropped to around half a month, a historically low level for the same period in recent years; PSF factories also saw follow-up sales, with inventories declining, though the degree of destocking was less than that of PFY. Among non-fiber varieties, the sales of PET fiber chip significantly surged on Monday, but sales were relatively modest after price increases on Tuesday and Wednesday; overall sales of PET bottle chip were dull, with the market mainly focusing on replenishment in April when price declined and adopting a wait-and-see attitude under high prices in May.

The operating rate of polyester spun yarn plants remained stable. The operating rate of DTY plants and fabric mills rose further this week in Zhejiang and Jiangsu and may recover to around 80% and 70% later. Some factories who have suspended production for a long period even plan to resume operation.

The inventory of grey fabrics and DTY also declined.

However, according to the samples traced by the CCFGroup, the inventory improved on the month on the whole.

Due to the 24% tariff, U.S. orders only have a 90-day window, creating time pressure by early-July. Some orders from Amazon and Walmart are being restarted, including part of the orders negotiated before April but not yet delivered, which are now being delivered opportunistically.

By the end of March, the inventory-to-sales ratio for apparel categories among U.S. wholesalers was only 2.06, a historically low value. After normal sales in April, the current inventory-to-sales ratio for apparel wholesaler should have declined further. There is still some uncertainty in future trade relations, as previous trade negotiations have been unpredictable. Therefore, to avoid complications, this round of U.S. restocking will also involve advancing preparations for year-end Christmas and New Year's Day orders traditionally shipped from June to September, particularly boosting sales of regular finished products. However, orders for high-end products requiring sample approval will be relatively delayed in timing.

Some maritime shipping platforms have indicated that recent booking and consultation volumes for U.S.-bound routes have risen beyond expectations, marking the arrival of a shipping peak for U.S. routes. According to YQN's shipping experts, U.S.-bound routes were fully booked before the end of May, with both the East and West U.S. coasts experiencing full capacity. Concurrently, freight rates have reacted rapidly, with a planned increase of $1,000 per 40HQ in late-May.

At present, U.S. export orders appear stable in May, but subsequent orders in June may be disrupted by transportation capacity issues.

Meanwhile, export orders to other regions and domestic downstream demand have both increased, driven by rising cost pressure and improved sales of grey fabric. However, part of this volume may stem from pre-seasonal inventory preparation, while another part reflects the "reservoir amplification effect" brought about by a shift from earlier inventory control to moderate inventory accumulation due to speculative mindset changes.

On the cost side, since this week, both futures and spot prices across the polyester chain-from raw materials to finished products-have surged rapidly. Notably, the upward momentum of downstream products has lagged behind upstream components. In particular, the transaction prices of some grey fabrics have shown weak growth, with some even maintaining April's prices for delivery. As a result, within the polyester industry chain, the processing spread in upstream links have improved significantly, while downstream processing spread remains weak despite efforts to raise prices. The rapid rise in costs is supported by the high operating rate in the polyester sector, coupled with maintenance activities and unexpected equipment issues. During the ongoing de-stocking cycle, unexpected shutdowns or run rate reductions in units can amplify the de-stocking trend.

In this rapidly rising market, upstream players now regret overselling, while downstream participants regret underbuying. However, compared to downstream firms that have at least locked in raw material costs for orders, upstream polyester factories may face more severe issues due to insufficient raw material reserves.

Among leading polyester factories with capacities exceeding 2 million tons, most have self-supplied PTA, but the self-supply ratio for MEG is relatively lower, increasing raw material procurement pressure during rapid price surges. In particular, some PET bottle chip manufacturers among the leading polyester factories may face greater raw material stress. In the coming period, the polyester market should be wary of increased production cuts or shutdowns by factories under high cost pressure. Rumors of production reductions have already emerged in some PFY segments. Attention should focus on PSF and PET bottle chip. Additionally, under high processing spread, PX and PTA factories may delay or reduce maintenance, and units who run normally may raise run rate. 

It is learned that as recent feedstock prices increase quickly, three large PFY companies unanimously decide to promptly cut back on unprofitable product lines and start planning the next production curtailment plan and will implement it in the near future.