Polyester filament: attention to cost side despite better market fundamental

Polyester filament yarn market embraced recovering supply and demand after the Mid-autumn Festival and National Day holiday (Sep 29-Oct 6).

Supply side: some PFY companies slashed run rate or suspended production in late-Sep due to the force majeure, covering 2.78 million tons of capacity. Among these, one 200kt/year of unit has restarted operation before holiday. From Oct 9, 1.40 million tons of units are heating up for restart. One 180kt/year of unit will suspend production temporarily. The comprehensive operating rate of PFY plants is estimated to restore to around 85-86% and that of direct-spun PFY producers will recover to 91-92%.

Demand sector: some downstream plants started holiday and cut run rate at the same time during the Mid-autumn Festival and National Day holiday. Some DTY plants had holiday. The run rate of DTY plants fell to around 61% in the first half of holiday. Many plants in Changxing started holiday and plants in other regions mainly slightly revised down run rate. The holiday schedule of fabric mills was diversified. Water-jet plants in Wujiang planned to shut down for 3-6 days, those in Changxing suspended production for 6-10 days, longer for 15 days, warp knitting plants in Changshu shut down for 3 days and circular knitting mills had holiday for 2-3 days. Circular knitting plants in Xiaoshan and Shaoxing mainly slashed run rate and some suspended production for 3-5 days for holiday. Sporadic water-jet mills in North Jiangsu and warp knitting mills in Haining cut run rate. The operating rate of fabric mills reduced to around 49% in the first half of holiday. Few printing and dyeing plants had holiday. Some companies stopped production for 2-3 days. The operating rate of printing and dyeing plants inched down to 77% in the first half of holiday. After the survey made by CCFGroup on Oct 7, the operating rate of DTY plants, fabric mills and printing and dyeing plants in Zhejiang and Jiangsu has recovered to 79%, 73% and 81% respectively. The run rate of DTY plants may increase to around 80% this week and that of fabric mills is likely to recover to around 75%.

Except for recovering supply and demand, PFY market also faces two major pressure.

Firstly, the inventory of PFY has been transferred to upstream market from downstream sector.

The inventory of POY/FDY of PFY plants and downstream factories was at 11.8 days and 12.9 days respectively before holiday on Sep 28, but it was at 17.8 days and 6.6 days after holiday on Oct 7. PFY stocks turned to be concentrated on PFY producers. That meant PFY factories encountered pressure to destock.

Secondly, the cost and value of stocks face increasing uncertainty with fluctuating oil price.

Oil price plunged during the Mid-autumn Festival and National Day holiday with turmoil overseas market but increased after holiday amid the Israel-Palestine conflict.

As for the market fundamentals of PTA and MEG, tight-to-balanced supply is expected to be seen in Oct. The processing spread and profit are anticipated to recover. The inventory burden is likely to be limited. The polymerization cost will be mainly affected by the energy market. The price of spot goods still lacks clear direction after price decreased.

For PFY producers and downstream players, with unclear cost and during the second half of peak season, it is suggested to be cautious in operation in short run.