PFY: turnaround scale of LNY's holiday may be smaller than past years

Price of oil rapidly declined since Dec and the lowest price appeared on Dec 12, with price of WTI futures and Brent futures down by 10% and 12% over end-Nov to $68.61/bbl and $73.24/bbl, close to the yearly bottom $66.74/bbl and $71.84/bbl.

The decrement of polymerization cost and polyester products was smaller than that of oil. By Dec 15, the polyester polymerization cost and price of polyester POY150D/48 dropped by 1.2% and 1.5% respectively over end-Nov.

As for the absolute price, the melting feedstock cost and price of PFY was lower than that in end-Nov and close to the yearly low at 5851yuan/mt and 7205yuan/mt respectively.

When price of the whole industry decreased, the cash flow of POY and FDY was still during positive territory. The supply/demand relationship has worsened but does not apparently deteriorate. The inventory of POY and FDY was still in consolidation, mainly around half a month.

Fabric mills saw inadequate new orders and reducing run rate, but the speed was not fast. By now, the run rate of DTY plants, fabric mills and printing and dyeing plants was at 87%, 78% and 77% respectively.

The operating rate of fabric mills near mid-Dec was only lower than 86% in 2020 but was higher than the same period of other years. In 2013-2022, the average operating rate of fabric mills was near 67% in mid-Dec. Current 78% of run rate meant rigid demand for PFY still had support. Some downstream buyers even had speculative procurement when prices of the value chain was close to the yearly low.

Remark: the data was by Dec 15

Current operating rate of fabric mills is higher than the same period of past years. On one hand, domestic orders are gradually completed and some export orders chase up, while companies reflect that export orders are weaker than previous years. However, recovering export orders will fulfill weaker domestic orders in short run. On the other hand, feedstock price weakens and has close to yearly low and the stocks of grey fabrics are low. Therefore, some fabric mills have space and activity to hoard up stocks.

As for market outlook, with the approaching of end-Dec and early-Jan, after domestic orders for fabrics being consumed, the run rate of fabric mills, DTY plants and printing and dyeing mills may accelerate decreasing. Rigid demand for PFY will soften, but there may be some supplement of speculative procurement under low price. Therefore, sporadic turnaround of PFY plants may appear before the Spring Festival holiday, but most have not confirmed the maintenance schedule compared with previous years. Based on current supply/demand pattern and cash flow of PFY plants, the turnaround scale of PFY plants during this Lunar New Year (Feb 10, 2024, LNY for short) is temporarily estimated to be lower than the central level of the recent years.