Polyester: end-user demand improvement still needs to wait

According to the survey made by CCFGroup, export of textiles and apparels was not very good recently. Most small and medium-sized companies saw scarce export orders. Some export-oriented enterprises even started turning to do domestic orders. In addition, the pick-up of goods was also slow. Export orders for some home textiles which were placed in the first half of year have not been picked up. Some companies reflected that the payment of customers from Egypt was not very convenient, affecting the placement of orders.

As for domestic sales, sales of knitted fabrics such as velvet fabrics in Haining and Roman fabric in Shaoxing slightly improved, while overall domestic sales grew limitedly. Seasonal demand may increase after the weather gradually cooled down. Some players expect demand to rise in end-Aug while some think it may be in late-Sep.

The operating rate of fabric mills and printing and dyeing plants still hit historic low, which was at 44% and 49% respectively. On one hand, stocks piled up due to inadequate orders; on the other hand, with heat temperature, some regions of Zhejiang and Jiangsu started power rationing. That meant falling run rate of DTY plants, fabric mills and printing and dyeing mills.

The weather is expected to cool down in the second half of this week according to the weather forecast. By that time, the operating rate of downstream plants may rise to above 50% again after the power rationing ended, and later run rate depends on the orders.

In terms of export, export data had a big bap compared with the actual feeling of enterprises. High growth rate of export value of textiles and apparels was mainly because of the following two reasons: the first was the time gap of orders. Overseas buyers will place orders of apparels half a year in advance or even earlier. Therefore, exported apparels in the first half of 2022 were placed in Q4 2021. Modest orders in H1 2022 reflected by companies will gradually echo from the export data in H2 2022. The second was because of surging export unit price. Soaring energy price in 2021 was gradually transferred to downstream products. Spiking export unit price offset the reduction in quantity. Export unit price of textiles and apparels rose by near 13% in H1 2022. Therefore, export quantity of textiles and apparels almost saw zero growth or even negative growth in the first half of 2022 if deducting the unit price issue.

Overseas retailers encountered big pressure to destock dragged down by high inflation and mounting inventory burden. Walmart, the biggest retailer in US, expressed that it has canceled billions of USD dollar of orders. As a result, the inventory was consistent with the expected demand. 

Downstream domestic demand is expected to weakly improve in late-Aug or early-Sep as some export and domestic orders may appear in advance, and the overall improvement may not emerge until late-Sep, mainly the orders for the online shopping spree on Nov 11, but the improvement may be limited and not last long, to be over in end-Oct, which is based on the following reasons:

1. The spread of pandemic has not stopped. The dynamic zero-COVID policy affects travel and consumption.

2. The residents witness falling income. Taking the textile workers as an example, their wages have been reduced by 20-30% due to poor business and descending run rate in 2022.

3. As the real estate industry is expected to be hard to rise apparently in the second half of year, the consumption of home textiles may be dragged down.

4. Speculative demand reduces when stocks are high on the whole value chain.

5. The demand in the second half of year largely relies on the online shopping spree for Nov 11, while the potential consumption for the online shopping spree is likely to be lowered when there have been many online and offline price promotions.

All in all, export may not deserve much anticipation in the second half of year, likely to marginally weaken. Domestic sales may increase limitedly but when it will grow needs further observation.  Players of the whole value chain are anticipated to face pressure to destock in Sep and Oct. In expectation of weakly rising demand, the increase of polyester polymerization rate is estimated to be limited.