Polyester demand outlook before the Spring Festival

Since late August, end-user demand has shown a trend of weak improvement, although the improvement is limited. Especially as recent commodity and futures market decrease notably, end customers are more cautious in placing orders, postponing orders whenever possible. Therefore, the overall downstream business witnesses slight improvement but remains in a neutral to slightly negative state.

On the other hand, there has been a significant increase in operating rate of downstream plants. Since late August, as the high temperatures in Jiangsu and Zhejiang ended and players expected peak season, downstream production has rapidly increased. As of September 5, the operating rate of DTY plants increased to 91% in Zhejiang and Jiangsu; the run rate of fabric mills ascended to 76% in Zhejiang and Jiangsu; the operating rate of printing and dyeing units rose to 80% in Zhejiang and Jiangsu. However, due to the improvement in downstream business being weaker than the increase in operating rates, the inventory of grey fabric continues to rise slightly. The strength of future improvements in end-user demand should be noted; based on past experience, the turning point for falling grey fabric inventory should be gradually approaching. However, according to surveys CCFGroup conducted this week, due to limited business improvement, grey fabric inventory has continued to accumulate slightly this week, not starting falling, which still needs to wait.

In terms of demand assessment before the Spring Festival, our view is as follows:

Firstly, based on the current domestic and external environment, along with the domestic sales and foreign trade data published in June and July, there is a generally pessimistic outlook for this year's peak season. Based on the survey, it seems that most downstream players lack confidence in the peak season. However, whether for cotton or polyester, it cannot simply say that the peak season is over. To put it simply, if the peak season could score 90 points previously, it might only be able to score 70-80 points this year. Therefore, it is highly likely that there will be varying degrees of improvement trends in the following months. If raw materials stabilize, this improvement might be somewhat more apparent. Conversely, continued weakness could further dampen market confidence, thus weakening the extent of improvement.

Secondly, from a seasonal perspective, the fall garments will start being produced in autumn from the end of August, with September being the time for large-scale production and sales of autumn clothing by e-commerce (branded clothing usually has a longer lead time based on order forms, while e-commerce produces based on demand with a shorter lead time). There is a significant use of cotton in autumn apparel such as sweatshirts and t-shirts, so it is normal for cotton to perform better than polyester seasonally. Recent performance data for cotton versus polyester in the downstream market supports this; cotton downstream market improves earlier than polyester, and the improvement is slightly better. At the very least, cotton fabric is gradually being destocked, while polyester fabric continues to accumulate inventory. Cotton's downstream market improves earlier, but we anticipate that the peak business period will also arrive earlier. It is estimated that by late September, the best point will have been reached (the turning points for cotton fabric orders in 2022-2023 were around mid-September). However, the warm weather in September will also affect orders and sales of fall apparel. Following this, around the National Day in October, large-scale production and sales of winter clothing will commence, during which synthetic fabrics will dominate the market. In recent years, whether for home textiles or garments, the proportion of synthetic materials used in winter has been significantly high, including polyester, nylon, and spandex. Therefore, late September to early October should be the peak period for polyester, though its relation to cotton becomes less significant during this time. In November, business conditions will depend on the e-commerce sales of winter products around the Double Eleven shopping festival to determine whether to replenish orders. This month is also when winter orders for the year typically wrap up. From December to January, it will be the period for placing foreign trade and spring orders for next year, with foreign trade orders needing to wait until after the U.S. elections in November for more certainty. The evaluation of foreign orders can only be made once the elections conclude. If Trump comes to power, the market's expectations for foreign orders by the end of this year and the first half of next year might be pessimistic; conversely, the pessimism expectations might ease. The situation of spring orders for next year should be concerned, but given the unsold spring garments this year and the domestic consumption outlook, the volume of spring orders placed before the Spring Festival is likely to be limited.

As for the polyester polymerization rate, as of September 5, it was preliminarily estimated to rise to near 88% in Chinese mainland. In the future, the polyester polymerization rate is expected to keep increasing slightly, likely returning to over 89% by the end of the month. The average the polyester polymerization rate for September is temporarily estimated to be around 89%, maintaining that for October, with a seasonal decline expected again in November and December. Caution is warranted regarding the possibility of low operating rates during the upcoming Spring Festival.