Polyester terminal market: operating rate hits multi-year low amid pandemic

The spread of pandemic has been intensified in Zhejiang, Jiangsu and Shanghai near the Tomb-weeping Festival, affecting some fabric manufacturing bases. With escalating regulation, the transportation has been restricted in the Yangtze River Delta.

The spread of pandemic and stifled logistics worsened chemical fiber and textile industry.

The operating rate of DTY plants, fabric mills and printing and dyeing plants kept refreshing new low since the Tomb-sweeping Festival, lower than the multi-year low and expected to reduce further.

By last Friday, the operating rate of DTY plants slipped to 67% in Zhejiang and Jiangsu: below 80% in Xiaoshan, Shaoxing and Cixi, near 60-70% in Changxing, above 60% in Changshu and more than 60% in Taicang. Operating rate of fabric mills decreased to 37% in Zhejiang and Jiangsu: near 60% for water-jet mills in Wujiang, near 60-70% for water-jet plants in Changxing, around 30% for water-jet plants in North Jiangsu, near 20-30% in warp knitting plants in Changshu, and 40-50% for circular knitting in Xiaoshan and Shaoxing. Almost all warp knitting plants suspended production due to the spread of pandemic. Operating rate of dyeing plants moved down to 59% this week in Zhejiang and Jiangsu: around 70-80% for plants in Wujiang and Changxing, at 60-70% in Xiaoshan and Shaoxing, around 30-40% in Changshu, and near 40-50% in North Jiangsu. Plants in Haining were offline.

The operating rate hit historic low in 2020 due to the outbreak of pandemic. The operating rate of DTY plants, fabric mills and printing and dyeing plants rose to 76%, 55% and 49% respectively in Zhejiang and Jiangsu after the Tomb-sweeping Festival in 2020, with average run rate in Apr at 72%, 51% and 50% respectively.

PFY plants faced bigger pressure with weak downstream market.

Firstly, rigid demand for PFY will reduce further when the run rate of downstream plants keeps falling. Downstream plants are inactive in production as the delivery of raw material and products is constrained. Speculative demand is also lacking. Stocks of PFY have accelerated rising in recent one week, with stocks of POY, FDY and DTY at 31.1 days, 30 days and 36 days respectively. The inventory of POY and FDY has been near the highest level in 2020 amid the pandemic, which has been above the peak level based on absolute inventory due to the capacity expansion in recent two years.

Secondly, sales of PFY encounter fierce competition amid traffic regulation. PFY price dropped again in recent one week. PFY plants have seen heavy losses based on spot raw material prices, with losses at above 500yuan/mt in some plants. The cash flow of PFY may be hard to improve amid high stocks in short run.

Thirdly, the melting cost remained firm but oil price has dropped. Raw material market is expected to face pressure from cost and demand. High inventory of PFY may encounter bigger pressure to be devalued and PFY which is made from high-priced raw materials may also become unprofitable.

PFY plants sped up to slash run rate since the Tomb-sweeping Festival. Supply of raw material and accessories was short in some plants. Some factories reduced spinning line amid high inventory and big losses. The operating rate of POY and FDY plants is expected to reduce further in Apr. Some units will be scheduled to have turnaround later after the regulation of transportation is eased.