How can polyester market achieve high operating rate but low inventory?

Recently, some customers have asked that the operating rate of polyester and downstream plants is obviously higher in 2023, while textile exports are not very good, so how can inventory not increase a lot? How on earth will such a high polyester output be consumed in 2023?

In fact, for this issue, there have been related discussions before, and CCFGroup will try to explain this problem by changing the perspective.

The issue of reference system

First of all, whether it is the level of inventory or operating rate, it depends on when it is compared.

PFY companies and downstream plants greatly scaled production in the fourth quarter of 2022, ending up with low inventory of PFY (including PFY stocks in PFY plants and downstream factories). If factoring into the sustainability of demand and inventory, current inventory accumulated compared with end-2022. In other word, part of the absolute low inventory was scarified by unprecedented production curtailment in 2022, not entirely the demand issue.

However, compared with same period of last year, current inventory is not high. There is one important reason for such status: demand was very poor impacted by the spread of pandemic in the corresponding period of 2022 and the inventory was very high.

If further lengthens the time period, it can be found that current operating rate and inventory of PFY plants only recover to the same period of 2021.

About the increase in demand

Apart from the base factor, it must be admitted that in the face of high capacity growth this year, the situation of high operating rate and low inventory has indeed exceeded expectations, in which the release of demand has played a very important role.

From the angle of demand, demand apparently grew in the first half of 2023. Just because the domestic and export data are calculated in terms of value, and the prices was significantly lower than that of 2022 in 2023, thus covering up the growth of demand this year.

For example, according to customs statistics, if priced in US dollars in terms of value, textile and clothing exports fell by 10% from Jan to Jul compared with the same period of last year. However, after translating into weight, the export volume from Jan to Jul fell by only 1% from a year earlier. Compared with these two, it can be seen that in addition to the impact of the exchange rate, it was also contributing to the decline in prices this year.

In fact, there were structural differences in details among different varieties. From the point of view of export volume, in chapter 54 of polyester filament yarn and fabric (chemical fiber filament; chemical fiber textile material flat strip and similar products), the year-on-year growth rate reached 12%. It was true that clothing exports declined in the first half of 2023, but the overall performance of chemical fiber clothing was still better than cotton clothing. On the whole, the export of polyester filament yarn and its made-ups still increased this year.

Domestic sales were also affected by price factors. From Jan to Jul this year, total retail sales of clothing, shoes, hats and knitwear increased by 11.4% compared with the same period of last year, exceeding the growth rate of 7.3% of retail sales of consumer goods. If the price factor is taken into account, then the actual growth rate of demand should be higher.

A considerable part of the increase in production in the first half of 2023 has indeed been digested through domestic and export sales, but prices have fallen sharply this year, with not very obvious growth rate in terms of value. This meant that volume rose but price did not climb up. The unit efficiency of some links was even lower than that of last year in 2023.

Downstream inventory accumulated on the month

One thing should be noted: the inventory ascended after Jun. It was mainly in grey fabric plants or fabric traders in terms of fiber field and concentrated in traders as for PET bottle chip sector.

Inventory started being diversified since May and Jun on upstream and downstream market of PFY. Inventory of POY plants rose limitedly while that of DTY plants and fabric mills gradually advanced, and the disparity of these factories is expanding, not shrinking apparently by now.

Stocks of DTY gradually accumulate to be high now. Actually, the stocks of grey fabrics have been close to the high level during the same period of last year. It was because DTY plants and fabric mills expect demand to grow in the second half of 2023 when demand improved in the first half of year. The price of PFY was not high too. Therefore, they kept running at high capacity even during traditional off-season and saw higher stocks.

Fortunately, stocks of DTY and grey fabrics slightly declined in some regions recently. As stocks accumulated a lot previously, the destocking remains slow. Players are waiting for increasing orders. As PFY plants and downstream factories continue running at high capacity year to date, the destocking may take a long time in the second half of year if the release of demand is worse than anticipated.

In addition, at present, the number of days is usually used to refer to the inventory level in the industry, but in fact, the capacity base is gradually changing, and there are too many links and enterprises (especially downstream sector), resulting in excessive error statistics. It's difficult to quantify accurately for the time being. Actually, how much inventory there is in downstream and intermediate links and how much demand will be released in the second half of the year are also the two most uncertain issues in the second half of 2023, which need to be verified by market later.