After the false start, where the polyester yarn market will be headed?

Before the Spring Festival, when the textile market was already on holiday, PSF futures prices rose for more than a week on the optimistic expectation that demand would recover after the optimization of epidemic prevention and policies. After the festival, however, the PSF futures market fell continuously, with the major contract declining by 600yuan/mt from 7,628yuan/mt to the lowest at 7,016yuan/mt, and spot PSF fell by about 400yuan/mt, or over 5%. The expected "good opening" was shattered by the reality of a "false start", and the estimated "improvement of demand" was replaced by the fact of a "weaker demand". This had led to the bearish sentiment among polyester yarn mills, and the pessimistic sentiment was also transmitted to the cotton market, which reduced more significantly since last week. As a result, polyester related varieties, including polyester yarn, polyester/cotton yarn, and polyester/rayon yarn, were greatly hit, and the market entered the low-point.

However, the current situation is only temporary as futures markets rise and fall by their own rules, which ultimately aligns with the spot market. After the Lantern Festival, work resumption of all links of the polyester industry speeded up. The operating rate of polyester yarn mills in Jiangsu and Zhejiang rebounded to 64%, and that of polyester plants moved up to 78% as of last Friday. At present, the demand from downstream polyester yarn mills is still depressed due to the continuous decline of PSF prices, yet the procurement is expected to increase when PSF price stabilizes.

For polyester yarn, polyester/cotton yarn and other varieties, the silver lining was that the inventory was reduced to a low level before the holiday, and spinners were in no hurry to conclude new deals in order to exchange for capitals. So the price decline of polyester yarn and polyester/cotton yarn was smaller than that of raw materials, yet, the work resumption of those yarn mills was slower compared with previous years. The Spring Festival holiday lasted for about a month this year, and some workers still haven’t returned to their works. In previous years, the operating rate of yarn mills after the Lantern Festival could reach 70-80%, yet that of this year was only 50-60%. But the inventory accumulation slowed down as a result.

It remains to be seen to what degree will the demand recover after raw material costs stabilize, and market players should be cautiously optimistic about the future market. The textile and apparel export of China in December decreased by 16.3% year on year, yet the total export of textile and apparel in 2022 increased by 2.6% from last year, which showed a downward trend during the whole year. Given the current economic situation overseas, expectations for the first quarter of 2023 are not optimistic. Therefore, the ultimate hope of textile and apparel industry rests on the recovery of China's domestic demand.