Unexpectedly surging replenishment of PFY may delay downstream LNY holiday schedule

Last weekend, there were no significant positive developments on a macro level. Although oil prices rose, the increase was modest, with WTI and Brent up by 1.81% and 1.47%, respectively. However, the polyester filament yarn market was very active, with a noticeable increase in inquiries and orders, leading to a surge in sales ratio in PFY factories.

This round of replenishment was mainly for downstream stocking ahead of the Lunar New Year (LNY). Many downstream companies have already stocked up through the end of December and into early January, and a few have even replenished their supplies for after the Lunar New Year to secure raw materials in light of incoming orders. Some PFY companies once again saw above 1000% of sales ratio and supply of some products has been tight in some companies, with some specifications already having been out of stock for over ten days. Sales of PFY improved on the weekend in Zhejiang and Jiangsu. The average sales ratio was assessed to around 460%. The sales ratios of major plants were at 550%, 300%, 400%, 500%, 550%, 0%, 0%, 180%, 500%, 200%, 900%, 75%, 310%, 450%, 200%, 500%, 200%, 120%, 200%, 1500%.

This replenishment may delay the Spring Festival holiday schedule of downstream plants, especially for DTY companies, with most expected to maintain operations until around January 10.

So, what caused this sudden surge in replenishment?

During the market survey made by CCFGroup last week, it was found that while domestic sales had wrapped up, foreign trade business has been recovering. Both PFY exports and fabric export orders have recently increased. This rise in export orders was partly due to seasonal factors; normally, the period leading up to the Chinese New Year (December to January) is a window for placing foreign trade orders. Additionally, the low prices of PFY have contributed to this replenishment, particularly in exports. It remains unclear whether there is any impact from the U.S. trying to secure exports.

Some leading fabric or textile companies began placing large orders to secure raw materials after receiving foreign trade orders, starting a replenishment wave on last Friday. As these leading downstream companies act as trendsetters in the market, this replenishment triggered a chain reaction, expanding from a small initial wave on Friday to a large-scale replenishment over the weekend, with more and more buyers entering the market.

Moreover, the low absolute prices of PFY were another major reason for this round of replenishment. Since mid-October, PFY prices have continued to decline, dropping below the September lows by the end of November, with POY150D reaching a low of 6,600yuan/mt, the lowest of the year. Looking at a longer time frame, current prices were comparable to the lowest point in November 2022 during the peak of the pandemic. Excluding the unique conditions of early 2020 when oil prices plummeted, current prices were at their second-lowest level in a decade, with the previous low being around 6,000yuan/mt for POY150D at the end of 2015. Many downstream companies believe that the price of filaments has limited room to drop further before the Lunar New Year and anticipate a slight increase amid the concentrated replenishment, leading to more companies restocking.

Finally, the weekend announcements from polyester factories also played a role in driving this replenishment. Specifically, due to PFY being in a prolonged period of extremely low processing fees, factories are facing significant losses. Starting next week, polyester plants will fully implement plans to reduce or halt production, and a million-ton PTA facility is set to undergo maintenance (a sudden development not yet digested by the market). As a result, polyester factories are gradually addressing their losses, with transaction prices expected to rise by 200-300yuan/mt on Monday and continue to increase to reasonable processing fees. Currently, mainstream FDY factories have low inventory levels (except for some regional factories with specific specifications suffering from severely reduced demand this year), and FDY prices are at historical lows, prompting recommendations for customers to stock reasonably.

Overall, this unexpected surge in replenishment has significantly alleviated the inventory pressure on PFY factories and is expected to delay the Spring Festival holiday schedule for downstream companies, particularly DTY enterprises.