Polyester filament yarn producers convert the sales policy

On Aug 26, a notice by the leading polyester filament yarn companies to cancel tiered sales rebates and designated area freight subsidies starting from September, attracted market attention.

To understand the context, we need to go back to May 23, when leading companies in the polyester filament industry began experimenting with a new model of production limit and price protection. This model involved adjusting operating rates to enhance profitability, either by stabilizing prices or price spread. The basis of this new model was the implementation of "fixed price" sales policy, which treated all customers in different regions equally without any discount policy and also eliminated night trading.

The "fixed price" sales policy is featured by transparent pricing and mutual restraint among leading companies. However, numerous detailed issues emerged, particularly regarding how to address price differences between large and small customers and freight issues to different regions. Consequently, since June, leading companies successively introduced tiered sales rebate policies and designated area freight subsidy policies.

Now, the cancellation of the tiered sales rebate and designated area freight subsidy policies signifies the formal end of the "fixed price" sales policy and the end of the new model of production limit and price protection after three months of implementation.

With the cancellation of the "fixed price" sales policy, the PFY industry has returned to be dominated by feedstock suppliers, PFY producers and downstream buyers.

As upstream feedstock prices stabilize and rebound, PFY prices have entered the bottom range for the year. PFY producers would continue production cuts. With the arrival of the peak season in September and October, downstream orders are gradually picking up. To align with customers' purchasing schedules, sales volume will increase someday, but the selling price would be raised by 50-100yuan/mt on the second day.

The routine of selling will follow the old patterns: quoting offers in the morning, but negotiating prices and discounts in the afternoon. As a result, PFY sales surged on Aug 26 afternoon.

In contrast to the previous "fixed price", PFY prices appeared mixed on Aug 26, with price discrepancies among the major companies. Discounts ranged from 200-300 yuan/mt, with some heard at even 350 yuan/mt. Small producers also provided bigger discounts.

On account of the promotion, PFY prices have dropped to this year's low, prompting downstream to buy intensively. As a result, the inventory of PFY has significantly decreased, alleviating inventory pressure. However, this comes at the cost of a significant loss in value due to inventory depreciation. Future attention should be given to the progress of PFY production recovery. As leading companies' inventories decrease significantly, it is expected that plant operating rate may gradually increase.

In a conclusion, the end of new production limit and price protection model attempted by leading companies can be attributed to several reasons. This new model relies on stable upstream feedstock prices and a favorable supply-demand environment. By anchoring price or price spread, the goal was to increase profits through price protection before limiting production.

In June, downstream operating rates remained high, and with the support of rising crude oil prices, leading companies achieved considerable profits through the "fixed price" model. However, in July and August, macroeconomic instability, a sharp drop in crude oil prices, reduced peak season expectations, and intensified downstream shutdowns caused by high temperatures drastically altered both cost and demand conditions, out of the expectations of leading companies.

Faced with a severe depreciation pressure from high inventory and future market uncertainties, the new production limit and price protection model became more difficult.

Overall, the three-month attempt of the model may not have brought the desired benefits for leading companies and may even result in slight losses due to high inventory depreciation in July and August; while the biggest beneficiaries could be small and medium-sized enterprises.