Polyester industry to encounter aggravating pressure in the next 3 months

Price of PFY increased by several hundreds of yuan in May while that of grey fabric lacked momentum to rise, which presented largely stable. Some grey fabric plants even cut price for promotion. The spot profit of conventional grey fabrics has started falling since late-May, mostly turning to be unprofitable or witnessing bigger losses. As a result, DTY plants and fabric mills showed obviously lower buying interest toward raw material.

Except for bigger losses, grey fabric mills also saw apparently falling orders in Jun after intensive order placement appeared in May. Downstream plants were less active in production. By Jun 8, operating rate of fabric mills decreased by 3 percentage points on the week. The decrement was not big, while it started falling earlier than market expectation, indicating bigger pressure on downstream market. The operating rate of downstream plants may tend to fall slowly later.

Downstream plants show falling speculative demand and rigid demand in Jun and most focus on consuming PFY prepared before. Sales of PFY have been sluggish for one week. With high operating rate, the stocks of PFY are more strongly expected to accumulate later.

As for the demand in medium run, both domestic and export demand are anticipated to face downward pressure in Jun-Aug.

In terms of export of textiles and apparels, the export of textile and clothing in May was $25.32 billion, a year-on-year decrease of 13.4%. From Jan to May, the export of textile and clothing was $118.2 billion, a year-on-year decrease of 5.3%. As expected, due to the decline in overseas demand and destocking, the export pressure is still significant. As the export in May-Jul of 2022 was relatively high, export of textile and clothing in Jun-Jul, 2023 is expected to still have a significant decline, with an estimated reduction at around 10%. With falling consumption of textiles and apparels and the destocking overseas, foreign trade orders are unlikely to improve significantly in the short term. It seems that the destocking period may be longer than market expectations, and the logic of overseas restocking in the second half of the year, which was originally expected by the market, may have a lower probability of occurrence, and the timing is expected to be pushed back to the fourth quarter. Therefore, there is still significant downward pressure on foreign trade exports in Q2 and Q3, and the opportunity for improvement is expected to be in Q4 at the earliest.

Export of polyester products was a hot spot earlier. Total export of polyester rose by more than 20% in Jan-Apr, 2023, especially to India mainly due to the advanced replenishment. Exports of polyester may gradually decrease in Q2 when the overseas consumption continues reducing and exports of finished goods in Southeast Asia keep falling. According to the survey made by CCFGroup, some export-oriented polyester companies have seen declining orders since late-May.

As for domestic demand, after the concentrated release of backlog demand in Q1, the slope of sequential repair of domestic and foreign demand will become more moderate in Q2. However, as textile and clothing are seasonal consumer goods, there is still a chance for domestic demand for autumn and winter wear in the second half of the year. Demand is expected to start growing in Sep-Oct, and may even be postponed to Oct (mainly due to the significantly shortened production cycle of e-commerce clothing in recent years, and the peak season time has also been postponed). Before that, the main focus is on market replenishment, sensitive to price.

In summary, downstream demand is anticipated to face bigger downward pressure in medium run. The coming rainy day and heat summer weather will drag down the operating rate of downstream plants, which will also challenge the high inventory of PFY later. Many new PET bottle chip plants will start operation, which is supposed to pose great pressure on PET bottle chip industry. The real test may only have begun in Jun on polyester industry and the pressure is anticipated to gradually aggravate in the next three months. The timing of decreasing polyester polymerization rate or the decrement of the polyester polymerization rate may hit market expectation.