June to see PSF struggle in supply length yet demand shortage

Direct-spun PSF plants in Jiangyin raised operating rate intensively as the pandemic got controlled in addition to previous restart plans. It is expected that the operating rate of direct-spun PSF will improve to 80% in early Jun, close to year’s high.

However, the demand side stays paled. At present, the inventory of polyester yarn and polyester/cotton yarn is still at 20-40 days, and the cash flows mostly hover around breakeven line.

By the way, why do not the spinners cut production yet? Although the cash flow hovers around cost line, the stocks of raw materials and products are in appreciation amid overall uptrend since May, so the actual profits of spinners perform better than that shown in the chart. If the feedstock slumps further, especially PSF and cotton are falling back from high now, polyester yarn production is likely to reduce in Jun.

Despite supply length in Jun, direct-spun PSF market stills see some favors.

1. The support from feedstock side weakens.

At present, PX-naphtha spread has been widened to $400/mt under tight PX supply caused by much lower PX price in Asia and hot demand for blended oil, while PTA-PX spread has been compressed to 200yuan/mt. Some plants even stopped PTA production to sell PX, and in Jun, PX run rate will also increase to the high of recent years. Therefore, feedstock side of PSF is likely to fall back, which provides room for the correction of direct-spun PSF.

2. Downstream plants will restock at low prices.

High price restrains demand. At present, both spinners and traders hold cargos at a small amount. If PSF price falls in place, intensive replenishment will be seen.

In conclusion, direct-spun PSF will face fierce competition in Jun pressured by excessive supply yet bearish demand.