Polyester polymerization rate tends to advance but will be unsmooth

Insight focus

Polyester market witnessed moderately improving fundamentals since late-Jul. Profit of polyester products slightly advanced and some products tuned to be profitable instead of under losses. Stocks descended and the polyester polymerization rate increased, which may ascend to 79-80% in end-Jul, up by 3 percentage points than previous low around mid-Jul. The polyester polymerization rate is estimated to start rising but the increase may be not smooth. The following points are noteworthy for this logic:

Downstream business did not increase much now. Only the downstream mindset and expectation changed.

As for the actual orders on terminal market, according to the survey made by CCFGroup, the composite order index increased by 1 to 36 from Jul 14 to Jul 28. Overall business improved limitedly and sustained poor. Water-jet lining fabric producers still saw bad business and mounting inventory. Warp knitting plants in Changshu did not see much change of business but players' mindset improved. Inquiries for water-jet fabrics for home textiles slightly rose from overseas customers in Changxing. Circular knitting plants in Xiaoshan and Shaoxing witnessed weaker business and orders fell, especially those from Europe. Some orders for warp knitting fabrics were placed in Haining. Most fabric traders did not have orders but prepared some for autumn and winter for speculation, expecting feedstock price to increase.

In terms of downstream mindset and expectation, most fabric mills hold some expectation toward the business in Aug and Sep. DTY plants and fabric mills replenished some after feedstock futures rebounded, including downstream traders despite of weak orders. Meanwhile, the operating rate of fabric mills inched up by 5 percentage points to 55%.

In short run, price of PFY will keep rebounding stimulated by macro atmosphere and the performance of commodities, which will further improve the downstream market sentiment and drive speculative demand. However, there are still no incentives from the market fundamentals of polyester and downstream market. Actual downstream orders rise limitedly and lack durability. Price of grey fabrics meets resistance in rising. The grey fabric plants suffer losses again based on current PFY price. Once commodities prices stop rising, downstream players are estimated to retreat to sideline again, which will further drag down sales and profit of PFY market. Therefore, the rise of polyester polymerization rate may be not smooth.

Terminal demand is likely to improve on the month in Aug-Oct, while the improvement may have uncertainty. We expect demand may grow in some regions in late-Aug and large-scale improvement is likely to emerge in late-Sep, driven by the orders for online shopping spree on Nov 11, while the growth is estimated to be limited and it may last for a short period, likely to stop increasing in end-Oct. With high inventory burden on the whole value chain, weak improvement of demand may push up the polyester polymerization rate limitedly. Based on the demand trend,  the polyester polymerization rate is expected to start recovering but the increment is estimated to be limited.