PFY producers try a new production cut plan to boost prices

From the second half of 2021 to 2022, impacted by the pandemic, the prosperity of the polyester filament industry gradually declined after reaching a peak in the first half of 2021, even reaching a loss-making state. Therefore, to reduce losses, leading companies limited production to stabilize, which to some extent helped to mitigate losses.

After the pandemic subsided, the demand for polyester filament gradually returned to normal, while new capacities also significantly decreased, greatly improving the long-term supply-demand pattern. Polyester filament companies have shifted from reducing losses in the past two years to seeking profit growth.

Currently, the polyester filament industry is attempting a new sales stratergy. The original model was to restrict production - reduce inventory - maintain prices, while the new model is to set prices - adjust operating rates inversely.

The two production restriction and price maintenance schemes are suitable for different external environments. The original model is suitable for periods of high uncertainty in upstream raw material trends and poor supply-demand patterns. By first restricting production and then maintain prices, the goal of reducing losses was ultimately achieved. The new model is suitable for periods of relatively certain upstream raw material trends and good supply-demand patterns. By anchoring prices or processing spread, the goal of increasing profits is ultimately achieved by first fixing prices and then restricting production.

Starting from May 23, leading companies significantly raised prices and implemented a fixed price policy. So far, 20 days have passed, and prices have remained firm, marking the first step of the new model.

Leading companies must be mentally prepared for inventory accumulation when adopting the new sales model, sacrificing some short-term market share to change market order. Currently, both leading companies and small and medium-sized enterprises in the polyester filament industry are operating at high rates. After the leading companies adopt the new model, sales ratio remains low, and inventory starts to accumulate rapidly. Meanwhile, small and medium-sized enterprises are experiencing a supply shortage due to their price advantage, and traders also find their goods in high demand.

As of now, the inventory pressure on leading companies has once again reached a certain level, while the inventory of small and medium-sized filament companies has significantly eased. Traders and downstream inventories are also gradually decreasing, indicating that the entire polyester filament industry's inventory is concentrating on leading companies.

It is entering the critical period for the upstream and downstream. Since price transmission takes more time, especially during the current off-season. Consequently, a small portion of downstream mills will likely choose to reduce production temporarily due to losses as their raw material inventory is gradually depleted. However, the extent of this reduction remains to be observed, and it is currently expected to be limited.

The crucial issue is whether leading companies can take the second step of the new model, which involves reducing production or significantly increasing production cuts to stabilize prices and inventory. Only by doing so can the new model form a closed loop and its success be evaluated. The success or failure of the new model has significant reference value for the future, and it is expected that its outcome will become apparent in the second half of June.