Worrying PSF market amid great spread between spot and PSF futures

PSF spread in 2022 has seen the lowest at 700yuan/mt and the highest at 1,250yuan/mt since the beginning of 2022. If the breakeven line is set at 1,100yuan/mt, it indicates that PSF stays at losses in most of the time. So the plants reach a consensus to cut production for guarantee the price. The operating rate of PSF hit new low consecutively and averaged at 75.2% in the first seven months, down about 20% points compared with 94.3% in the same period last year.

During the production curtailment of PSF plants, the stocks of traders were squeezed. Starting about Jun, spot-futures traders accomplished much less orders as PSF plants failed to provide sources. In the meantime, PSF plants dominated more in pricing. The price gap between spot PSF and PSF futures was within 200yuan/mt in early Jun, increased to 600-700yuan/mt in early Jul and hit nearly 900yuan/mt after PSF futures slumped on Jul 13, which was seen for the first time since the list of PSF futures. PSF spread also improved, over 1,000yuan/mt for about half a month.

However, the market outlook seems discouraging. The operating rate of PSF rose to 85% this week after Jinlun and Sinopec Luoyang restarted, but downstream spinners ran lower due to high inventory, losses and hot weather. By end-Jul, the operating rates of polyester yarn and polyester/cotton yarn are expected to drop to 48% and 45% respectively. The sharp supply length and bearish demand trap PSF market and PSF spread has risks to be compressed again.

Recent plunge of the market more lies in the economic recession and the market fundamentals are neglected under the panic sentiment. In the future, both spot PSF and PSF futures will return to normal. When the panic passes, PSF futures will not be pushed down more unless crude oil falls. Facing changeable international political situation, market participants will continue to stay on the sidelines.