When will high inventory burden be alleviated on polyester market?

Polyester market was in stagnation in Jan-Feb. Current market trend was basically consistent with expectation.

Expectation one: oil price shivered at high level. Price of WTI futures was above $80/bbl in Jan and was not far from $100/bbl. Overall market still saw firm cost and players continued worrying the high price to have downward risk.

Expectation two: high polyester polymerization rate. According to the data from CCFGroup, many polyester units resumed operation from turnaround after the Lunar New Year's holiday. As a result, the polyester polymerization rate rapidly ascended, which was at 90% early this week and may rise by 1-2 percentage points later. That means the polyester polymerization rate is expected to fluctuate near 91-92% and opens very high in Mar.

Expectation three: stocks pile up in polyester enterprises, especially in PFY producers. The inventory of PFY has accumulated to around 1 month due to slack sales after holiday. Not many POY plants cut production during the Lunar New Year's holiday. As a result, the inventory of POY, FDY and DTY were close. Current inventory was higher than the same period of last year and even higher than 2020 due to the outbreak of pandemic.

The polyester polymerization rate was not high after Mar in 2020 and the stocks stabilized after plants resumed operation. However, the polyester polymerization rate was apparently high this year.

Except for supply, mounting stocks were also due to mute demand. Actually, downstream plants did not have too many PFY stocks now and they needed to replenish. However, downstream demand failed to appear.

Sales of PFY presented sluggish in Feb every year affected by the Lunar New Year's holiday while it was rare that sales have remained dull since Jan in 2021.

In Fact, downstream buyers were inactive in purchasing partly because some expected price to reduce later. PFY price was high now and has shown signals to drop.

In addition, rigid demand for PFY was mediocre as most downstream plants still ran at low capacity. Fabric mills shut down for the Spring Festival holiday apparently earlier this year and the resumption after holiday could be described as moderate. However, current operating rate of downstream plants was far lower over last year.

Scant orders were the root. Resuming operation after holiday would end up with higher inventory. Players held cautious mindset. The sea freight was rumored to rise again before while started falling substantially recently. Export shipment also decreased recently.

Limited orders may be due to the time issue or the price issue, hard to specify. Under such circumstance, downstream plants were forced to be cautious. However, it is not suggested to be too pessimistic about downstream demand.

Some participants worried the spread of pandemic in Suzhou to impact the polyester polymerization rate. According to the survey made by CCFGroup, the polyester polymerization rate was stable now but the run rate of downstream water-jet plants and printing and dyeing plants was affected. Demand could not be described as dragged down by the pandemic, while negative influence has been witnessed.

With high operating rate and weak sales, stocks piled up. Optimistically, if downstream buyers replenish when polyester plants, mainly PFY producers, slash price for promotion in end-Feb, stocks will drop to a certain extent but hard to stop accumulating. If feedstock price decreases to the psychological price of downstream buyers, replenishment may emerge. If feedstock price sustains high, downstream buyers may gradually accept high price.

It took almost one month for PFY plants see destocking from inventory accumulation in 2020. It is hard to predict the status in 2021. However, there may be one thing to be confirmed: polyester companies may witness big pressure in Mar, especially PFY enterprises.