Polyester: Low price impairs the expectation of production cut?

Since mid-October, the price of polyester filament yarn has been continuously declining, lower than the low point from the end of September by the end of November. The price of POY150D has dropped to a low of 6,600yuan/mt, marking a new low for the year. Looking at the longer-term trend, current price is roughly on par with the lowest point in November 2022, which was during the peak of the pandemic. Excluding the exceptional circumstances in early 2020, when oil prices were in the single digits or even negative, the current price is the second lowest in the past decade, with the previous low occurring at the end of 2015 when the average price of POY150D was around 6,000yuan/mt.

In the context of these low absolute prices, the tolerance for finished product inventory among polyester producers and downstream companies seems to have increased. During the survey, some downstream DTY plants and fabric mills reported that although business is not ideal at the end of the year and finished product inventory is accumulating, they still wish to hold on until after New Year's Day or around January 10 to take a holiday. Their reasoning includes concerns about labor recruitment issues next year, as well as the current low yarn prices. Given the macroeconomic policy direction expected to be "more proactive and effective" next year, they feel that accumulating some inventory poses minimal risk. Additionally, some maintenance plans for polyester companies during the holiday have been reported, the overall scale is not large, possibly due to low prices and favorable policy expectations delaying production curtailment.

Although inventories of polyester companies are higher than the same period last year, based on the need for downstream companies to stock up normally before the holiday (generally around 15 days of essential stock, with the rest depending on speculative sentiment), the inventory pressure on polyester companies may not be too significant before the Spring Festival holiday. Downstream companies typically suspend operations for about a month during the holiday, so the real inventory pressure for polyester companies will mainly manifest after the holiday, especially if maintenance efforts are limited. Therefore, the extent of maintenance during the holiday largely depends on each company's assessment of the situation in the first half of next year. From this perspective, if oil prices do not experience a significant drop before the holiday, the potential for further declines in filament yarn prices may be limited, while there is considerable uncertainty afterward.

After the holiday, both polyester and downstream finished product inventories are expected to be higher than the same period of this year. On the cost side, attention remains on oil price trends. Overall, while demand growth in the crude oil market is expected to be low and more certain in 2025, the supply side faces excess pressure as OPEC+ gradually exits voluntary production cuts, alongside geopolitical risks and the complex impacts of Trump's return to power on the entire oil market. This means that the supply side remains quite elastic, adding uncertainty to oil price movements. As for the demand side, due to higher finished product inventories compared to this year, the average operating rate for downstream DTY plants and fabric mills is expected to be lower than the same period of this year in the first half of 2025. Attention should also be paid to the implementation of tariffs after Trump officially takes office and whether there will be a "rush to export" phenomenon in the first half of 2025. Even if such a phenomenon occurs, its intensity is likely to be significantly less than during the first trade war in 2018-2019.

Overall, although the prices in the industrial chain are indeed low before and after the Spring Festival holiday, the fundamentals of the industry itself are unlikely to drive prices upward. This is one reason why some downstream plants are cautious about 2025, believing that the opportunity for returns from stocking up on raw materials at the end of the year is minimal and that normal stocking is sufficient without excessive speculation. They would prefer to reassess the situation after holiday.