Polyester market operation during the National Day holiday

1. Petrochemicals

Players focused on the OPEC+'s meeting during the National Day holiday (Oct 1-7), which was the first offline meeting since Mar 2020. The OPEC+ finally decided to cut production by 2 million barrels from Nov, equivalent to 2% of the daily demand for petroleum worldwide. As a result, WTI crude oil futures closed up by $8.96/bbl or 11.3% on Oct 6 compared with Sep 30. Prices of petrochemicals also traced the uptrend.

The United States was quite dissatisfied with the production cut and said that current economic fundamentals do not support production cuts. But in the end, the production reduction agreement was not only passed, but also bigger than the expectation. The White House immediately announced that it would launch a series of hedging measures to counter it, including the further release of strategic oil reserves, and the "NOPEC" bill may also be put on the agenda again.

2. Polyester sector

Price of PFY was stable on Oct 1-3 and increased on Oct 4-7 when crude oil price surged impacted by the news that OPEC + will scale down production in a large scale, with price increment at around 200yuan/mt. Price of PET fiber chip and PSF also slightly climbed up during the National Day holiday.

The average sales ratio of PFY was assessed to 50-60% on Oct 1-6. Sales were slack on Oct 1-3 and improved on Oct 4-6 driven by soaring oil price. The sales ratios of major plants were at 70%, 70%, 100%, 90%, 30%, 80%, 100%, 110%, 30%, 20%, 80%, 50%, 45%, 50%, 10%, 80%.

The stocks of PFY rose by 1-1.5 days during the National Day holiday based on 60% of sales ratio on Oct 1-7 and 75% of operating rate in direct-spun PFY plants. Downstream buyers were stimulated to replenish after oil price surged. The inventory of PFY piled up less than anticipated but kept high.

3. Downstream field

Many downstream plants shut down or scaled down production during the National Day holiday, with apparently falling operating rate on Oct 1-3 and recovering run rate on Oct 4-7. The average operating rate of DTY plants, fabric mills and printing and dyeing plants was above 60%, above 50% and 60-70% on Oct 1-7.

4. Post-holiday forecast

Downstream buyers increased purchasing after oil price spiked during the National Day holiday, ending up with better-than-expected sales, while overall sales were moderate as downstream buyers still held cautious mindset. PFY companies only slightly raised price, indicating high inventory burden, and most were cautious in price uplift as they wanted to destock at first. The weather cooled down obviously from Oct 5, which boosted some demand, while the spread of pandemic in some regions also repressed demand. According to the survey made by CCFGroup, most downstream plants saw unchanged business. Only warp knitting mills in Changshu witnessed slightly better business. Warp knitting plants, who saw good business earlier, also faced decreasing business.

In general, soaring oil price only drives sales of PFY for a short period. High inventory burden remains. Players still hold weak mindset. Downstream business does not show signals to increase temporarily and may even weaken later. By convention, seasonal demand is likely to soften near end-Oct. The change of weather and spread of pandemic should be concerned. If the spread of pandemic is controlled and this year will be a cold winter too, demand may be stimulated to a certain extent. Based on current status, the ease of high inventory burden in PFY companies will depend on the production curtailment when downstream demand is hard to improve. Soaring oil price only slightly defer the progress of production cut for a short period.