The polyester market has been suppressed by the downstream and upstream sectors since late March. As of April 13, the operating rate of both DTY plants and fabric mills in Zhejiang and Jiangsu fell to 65%, down 27% and 11% from previous highs. Polyester companies faced selling pressure when downstream plants were unwilling to buy with higher raw material prices.
With cost and sales pressure, the polyester sectors also suffered obvious losses. The shortage of traditional POY and FDY was the most severe and the inventory of polyester products also started increasing. However, the polyester market is still highly flexible. The polyester polymerization rate only dropped to 87.8% by April 14, from an earlier high of 90.9% at the end of March. The all new polyester units produced PFY.
Polyester companies faced difficulty in cutting production. On the one hand, small and medium-sized polyester companies have steadily reduced production. Factories also need to consider the issue of labor after production has come to a standstill. On the other hand, the leading companies do not appear to be as united as last year, with independent operations as per their status. Therefore, it would be difficult for them to discuss joint production cuts in the short run, even if they suffered losses.
With feedstock futures moving strong on April 14, polyester companies were forced to cut prices to promote. Based on the spot raw material price on April 14, the loss of POY150D/48F exceeded 500 yuan/mt and the loss of FDY150D/96F exceeded 400 yuan/mt. Downstream buyers pushed up PFY's sell ratio, which stood at 300% as recently as April 14.
After intensive replenishment on April 14, PFY stocks at DTY plants and textile mills may guarantee production till next week. Hence PFY sales are expected to remain low. The holiday plans of DTY plants and textile mills for the May Day holiday (April 29-May 3) next week should be highly concerned, as well as PFY sales at the end of April. Whether PFY plants will cut prices to re-promote amid a rising feedstock market, further observation is needed.
Therefore, some market participants thought that inventory rather than losses in polyester companies was the most important factor influencing production cuts. The current inventory of PFY was reduced to only half that of 2022. In such a situation, some players have concluded that polyester companies cannot simply temporarily cut production when the inventory burden is not clear, at least not see a large-scale production reduction. The upstream feedstock market is optimistic again.
Hengli Petrochemical announced that a 2,500kt/year PTA unit in Dalian will have a scheduled turnaround from mid-April 17. Buoyed by this news, PTA futures performed strongly. Polyester companies are more likely to face rising inventories in April, when operating rates at DTY plants and fabric mills fall sharply from March. The polyester industry is now facing a growing contradiction. How long polyester companies can survive amid losses and steady sales pressure needs to be watched further.
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