Will polyester industrial yarn step out dilemma in H2 2022?

There were many new PIY capacity in 2020 and 2021, ending up with escalating contradiction between supply and demand on PIY market. The price competition was fierce on the market and profit of PIY continued shrinking. In 2021, the average processing fee of ordinary high-tenacity PIY 1000D/192F was at 2,141yuan/mt, under losses and hitting historic low. Although there were no new capacity in the first half of 2022, the processing fee sustained low. PIY market could be described as in plight.

Demand for PIY presented weak in the first half of 2022. Domestic demand was dragged down by periodical production suspension amid the spread of pandemic. As for export, exports of PIY amounted to 234kt in Jan-May, 2022, down 1.8% on the year. Therefore, although the operating rate of PIY plants was lower than the same period of past years, the competition kept fierce and the profit was poor.

Most mainstream big PIY companies are integrated with PET fiber chip, which was supposed to lower the production cost of PIY to a certain extent. However, the price spread between bright PET fiber chip and semi-dull PET fiber chip continued narrowing with rising supply since Q2. As a result, the profit of bright PET fiber chip extended lower continuously, with the cash flow even during negative territory in Jun. Big PIY plants saw worse profit.

To reverse losses, big PIY companies intensively raised price this week, with offers of ordinary high-tenacity ones up to 12,150yuan/mt by mid-week from 11,000yuan/mt in early-week, while trading was scarce after price soared, which may remain limited in short run as downstream buyers may focus on digesting PIY prepared before.

Will PIY market step out dilemma and welcome better operation in the second half of year? It will depend on the operation between downstream and upstream market. Big PIY enterprises may be firm in curbing price from falling in short run even if upstream feedstock cost decreases. Price of PIY is expected to be largely stable while trading may be scant. In medium-to-long run, if PIY companies can continue cutting production to prevent price from declining and downstream buyers gradually accept highly-priced PIY, the profit of PIY may increase greatly in the second half of year. If downstream demand weakens when PIY plants cut production and PIY prices are high, PIY companies are likely to discount price for promotion amid inventory burden. The price spread of PIY is estimated to substantially shrink.

As for supply and demand pattern, there are no new PIY capacity launched year to date. With better controlled pandemic, demand is likely to improve in the second half of year. Therefore, the profit of PIY is likely to improve in the second half of year, while it is hard to see the processing fee of ordinary and high-tenacity ones at 3,500yuan/mt (the processing cost is at 2,500yuan/mt) as PIY market is oversupplied.