Behind the rise - reversion of direct-spun PSF’s cost and supply & demand

Since late Sep, direct-spun PSF has experienced intense fluctuation. The lead contracts of PSF futures surged from 7,000yuan/mt to over 8,500yuan/mt, close to the highest since Feb after the list of PSF futures. Spot direct-spun PSF also increased from 7,000yuan/mt to about 8,300yuan/mt.

Last increase was attributed to the factors below: Firstly, driven by the expected inflation, hot speculation happened to the improvement of the pandemic and the recovery of demand, leading to general rise of commodities; secondly, after the list of PSF futures, the basis was high, favorable for spot-futures traders to stock up. During Nov-Feb, many trades were done by locking basis, and the sales ratio of direct-spun PSF plants seemed good. It attracted a large amount of capital to take part in, pushing up PSF futures further. In Feb-Mar, the increase in PSF was far more than that in PTA and MEG and the cash flow also reached 1,000yuan/mt. But in fact, the inventory held by traders was accumulated quickly. It can be seen that this wave of increase was more from inflation sentiment and purchasing of spot-futures traders.

However, it foreshadowed later decline. When direct-spun PSF fell back later, spot-futures sold smoothly but the plants faced compressed profits and soft sales, which revealed half year-long weakness of direct-spun PSF market fundamentals.

The product inventory in direct-spun PSF plants moved up from end-Feb and hiked to the highest in late Aug. During the half year, the profits declined gradually from 1000yuan/mt to minus 300yuan/mt.

As the losses escalated, maintenance plans were put on the agenda increasingly. During late Jul to Aug, the operating rate of direct-spun PSF plants kept dropping from 96% to 80%. Subsequently, the dual control on energy consumption came. The plants were forced to cut or suspended production and the operating rate continued the decline. By early Oct, it hit the lowest 70%.

However, it surged from the end of Sep. Looking from the cost side, energy shortage including crude oil, coal and natural gas triggered the rise of costs. From figure above, it can be seen that polyester feedstock increased more than direct-spun PSF, especially MEG. That is to see, the hike of direct-spun PSF this time was mainly contributed by polyester feedstock. In terms of the inventory, the product inventory in direct-spun PSF plants was high, while that in spot-futures traders was few left. In spinners, the stocks of raw materials were adequate at 20-40 days. From the perspective of downstream demand, the operating rate of polyester yarn and polyester/cotton yarn slumped in Sep-Oct affected by electricity restriction. Currently, the power restriction is centered in Jiangsu and Zhejiang. According to the policies, the operating rate will keep low for some time. Overall, direct-spun PSF now stays in tight balance with improved cash flow. But on the other hand, the demand from polyester yarn was weak, and the spinners show little intention to replenish raw materials or lock raw materials according to their orders. They may intensively procure until early to mid-Nov. In short run, direct-spun PSF will keep volatile at high level and swing alongside the feedstock.