Three major difficulties on recycled PSF market

With the weak anticipation on macro environment and weak, polyester industrial chain moves lower. Prices of MEG, polyester filament yarn and PET bottle chip have hit the new low within the year.

Currently, recycled PSF market faces three problems.

1. Difficulties in purchasing feedstock and firm support from costs

Normally, summer season is the peak season for PET flakes supply due to hot weather and travels, but this year, the situation is quite different. The outflow of PET flakes in other application and multiple outbreaks of epidemic results into tight supply and recycled chemical fiber plants are hard to purchase feedstock. Dragged down by lower virgin PSF and weak demand, some plants lowered the purchase prices of PET flakes, but low-priced sources are limited, and a few bottle bales prices move up. Polyester drawing waste prices are firm, and popcorn prices are hard to slip. The cost support is firm.

2. Virgin PSF prices move lower, weighing on re-PSF prices

The accumulating inventory of PTA is delayed, and new production is supposed to emerge successively in late Nov. Dragged down by weak expectations on macro economy and demand, PTA market may be weak in the future. MEG inventory is supposed to pile up in Nov and Dec, and the prices are expected to be weak, lacking upward momentum. Recently, polyester feedstock prices see larger decrease, and cash flow of direct-spun PSF turns from negative to positive, and keeps improving, so prices of direct-spun PSF have downward space.

Coupled with the epidemic, new orders of downstream fabric mills reduce significantly. Orders are impacted by the epidemic in Foshan and orders in some fabric mills can only maintain till early Nov. Without big orders, fabric mills are cautious to replenish. In Dieshiqiao Home Textile market, the lock-down measures are lifted on Monday and HC virgin PSF plants tend to focus on selling and transactions can be discussed. Downstream demand is likely to weaken gradually and is expected to be the weakest in Jan during the Spring Festival holiday. With lower virgin PSF market, re-PSF market faces downward pressure, leading to lower price spread, which may see substitution if price spread is within 500yuan/mt.

3. Recycled chemical fiber plants are in a dilemma in feedstock replenishment

The Chinese Lunar New Year comes earlier this year, and the Chinese New Year's eve is on Jan 21, 2023. Currently, the feedstock inventory in recycled PSF plants is limited. If the plants purchase feedstock, they face the risks of inventory depreciation on concern about the weak market later, but without adequate feedstock, the operation may be impacted.

In general, PET flakes supply reduce with lower temperature, and recycled chemical fiber plants not only face the difficulties in purchasing feedstock, but also face the pressure from lower virgin PSF market. In addition, if the plants purchase feedstock, they face the risks of inventory depreciation, but without adequate feedstock, the operation may be impacted.