"Roller coaster" polyester market before and after the National Day holiday

The period from July to September was probably the most pessimistic three months of this year. At least until September 24, the whole market was quite gloomy, grappling with macroeconomic deflationary trends and weakened supply and demand dynamics in the crude oil and PX sectors. Additionally, the polyester industry was under persistent pressure from high inventory, leaving little hope for improvement. The prices along the industrial chain were under a continuous downward trend.

During these three months, downstream buyers attempted to bottom-fish at least twice, only to find themselves heavily trapped. The first attempt occurred when major manufacturers offered fixed prices. At that time, there was optimistic belief that prices would hold, but unexpectedly, prices began to plummet rapidly in late-July. The second round of bottom-fishing happened around late-August, with optimistic views: 1) PFY prices had dropped to the yearly low, and 2) the traditional peak season in September was approaching, which would mitigate the risk of further price decline. Many people thus entered the market to replenish stock, with numerous downstream buyers securing materials until the end of September. However, the PTA futures major contracts plummeted from 5400yuan/mt to 4600yuan/mt, leading PFY prices to drop quickly by 500-600yuan/mt, causing significant devaluation of raw material inventories in downstream plants and a sharp decline in market confidence.

End-user demand was not good too. The improvement of downstream market in terms of operating rate and orders were quite limited in traditional peak season September due to several main reasons:

1. The sustained decline in raw material prices has led downstream customers to delay or place orders in batches, resulting in fabric mills still facing a shortage of orders. Even customers who placed orders earlier have been demanded price adjustments, which has adversely affected the profits of fabric mills.

2. Weather conditions have played a role, as higher temperatures after September are unfavorable for autumn clothing sales, further delaying the order placement for autumn and winter products.

3. Market confidence has been insufficient, leading to the shrinkage in stocking orders for the autumn and winter.

A ray of hope did not emerge in the whole industry until after September 24.

With the introduction of favorable macroeconomic policies in China, the stock market urged significantly, improving the atmosphere for commodities and boosting market confidence, which led to stabilization in industrial chain prices. Some previously postponed downstream orders also began to be placed.

2. The weather turned noticeably colder, particularly with increasing temperature differences between day and night, leading to the placement of winter orders and a simultaneous improvement in demand. The inventory of grey fabrics started falling.

In the context of rising commodity prices driven by macroeconomic positivity and a seasonal improvement in downstream demand, speculation on filament demand from the downstream clearly increased. In the final days of September, downstream buyers began to replenish their raw materials at low prices. Sales ratio kept increasing in filament companies. By the end of September, the average inventory of POY and FDY dropped to around 15 days, marking the lowest level since the beginning of the year; some tightly-supplied specifications were already sold out. Following several days of improving sales ratio and rising polyester costs, filament factories began to narrow discounts on the last day of September.

The dramatic increase in oil prices during the National Day holiday further fueled the market. Due to the sudden escalation of the situation in the Middle East, oil prices surged, posting the largest weekly increase in over a year, temporarily dispelling market concerns about a bearish outlook on oil. Boosted by the significant rise in crude oil prices, filament prices also accelerated increasing, with POY and FDY increasing by 400-600yuan/mt over pre-holiday level and DTY averaging a rise of about 200-300yuan/mt over the pre-holiday level.

Sales of PFY were diversified during the National Day holiday (Oct 1-7), averaged at 50-70%. Some companies saw balanced sales and production when price rose slowly. The average inventory of POY and FDY was near 18 days after holiday. The inventory burden which bothered polyester companies for a long period has been eased.

This wave of downstream replenishment has lasted longer and involved substantial replenishment efforts, with several reasons to summarize: 1) A shift in macroeconomic policies, 2) Alleviation of concerns over a short-term decline in oil prices, 3) October being a seasonal peak period, and 4) Downstream PFY stocks having been nearly exhausted, coinciding with the procurement cycle timeframe.

Looking at downstream orders, as October progresses, downstream demand continues to exhibit a seasonal improvement trend, although it has not exceeded expectations. Orders for apparels were better than those for home textiles and orders for knitted apparels outpaced that of woven ones. Notably, the Haining warp-knitted plush products are selling the best. Meanwhile, grey fabric inventory continues to decline, but the price of grey fabric is still struggling to rise, with most fabric factories primarily selling at stable prices or with minimal increases. Moving forward, it is essential to monitor the sustainability of demand improvement, especially whether the positive macroeconomic factors can genuinely translate into improved demand. Historically, demand typically begins to start weakening by the end of October, so the next key time for demand will be at the end of October.

In the short term, with the combination of favorable macroeconomic conditions, rising oil prices, and improving demand, the polyester industry is currently in a positive feedback loop, and prices are expected to continue increasing. However, the recent rapid increase in POY prices has significantly outpaced that of DTY, leading to some hesitation among DTY plants regarding POY purchases. Further purchases of POY may only be stimulated after the DTY prices catch up after holiday.

As for the polyester polymerization rate, it increased to 91.2% before National Day holiday as the run rate of PET bottle chip plants rose more than anticipated. In October, Yisheng Hainan's 500kt/year unit started operation, which has heated up before holiday. Juxing's 200kt/year unit will resume production later. The daily highest polyester polymerization rate may be as high as 92.4%. Therefore, the average polyester polymerization rate of October is revised up to near 92% and may be at 90-91% in November as seasonal demand may weaken, but is also apparently adjusted up than before.