High polyester polymerization rate retreats, Q4 may see turning point

The polyester polymerization rate hit yearly high at 93.4% in early-November but has fallen to 92.7% last week after two units had turnaround or cut production. Market players seemed to see turning point in terms of polyester polymerization rate, while the absolute polyester polymerization rate remained high over previous years.

One of the drivers behind the decline in polyester polymerization rate is the weakening demand from the market. In fact, results from CCFGroup survey last week indicated that orders and production of fabric mills have begun to decline, and this trend has continued this week. Dyeing and finishing plants' run rate also started to moderately decrease, while the operation of DTY producers can still be maintained for the time being. Recently, downstream sectors of PET bottle chip such as beverages and sheets have also reported issues with weakening demand.

The decline in downstream demand is reflected in sales pressure, which is further manifested in the inventory levels of polyester plants. Comparing with the same period in previous years, it can be observed that the current inventory of POY, in absolute terms, does not seem particularly large, but there appears to be some pressure when looking at the trend.

Over the past few years, except for 2021 when demand remained strong and inventory was already low, leading to normal accumulation around November, the factories were still in a destocking phase during the same period in 2022-2023. The reasons for destocking were different: in 2022, high inventory levels and falling prices prompted factories to reduce production to destock, while in 2023, the fourth quarter saw stronger demand, leading to proactive destocking in the market. In contrast to previous years, this year, the operating rate of direct-spun PFY plants remains above 90% and there are currently limited plans for production cuts, while there are signs of accelerated inventory accumulation. From this perspective, if there isn't a replenishment in the near future, filament inventory may reach a new plateau.

The performance of PSF is relatively more stable this year. The inventory has not tended to pile up temporarily but keeps high in recent years.

In fact, the inventory of PET bottle chip is also gradually accumulating. Since October, market transactions have weakened, and the increase in operating rate during the same period has placed renewed liquidity pressure on the market. It is reported that in addition to this week's production cuts, other factories may also be planning new production curtailments.

The downward process of polyester polymerization rate is likely to be gradual. Some companies have begun formulating maintenance plans for the end of the year, but many are still in the consideration stage. From a direct driving perspective, the accumulation rate of inventory from mid-November to early-December may become an important variable.

Additionally, it is worth noting that recent fluctuations in the macroeconomic environment may amplify market movements. Whether the strong dollar trend can continue will have implications for the domestic stock market and commodities, further influencing industry sentiment.