Polyester downstream under high inventory, how about later replenishment incentive?

In mid-December, there was a wave of large-scale centralized procurement from downstream, leading to a significant increase in sales ratio of PFY. Some factories reported above 1000% of sales ratio, while certain plants or branches of leading enterprises experienced tight product availability or negative inventory situations. Some specifications have even been out of stock for over ten days, particularly in the POY sector, where inventory has dropped to just about a week, reaching a low point for the year.

This replenishment was primarily due to downstream stocking ahead of the Lunar New Year. Many downstream businesses have already stocked up until early January, and a few have even replenished their inventory for after the Lunar New Year to secure raw materials in light of received orders. Statistics showed that in the past two weeks, the PFY stocks of by downstream plants reached high levels compared to both this year and previous years.

There were two main reasons for this downstream replenishment. First, the absolute price of PFY was low, leading many downstream players to believe that there is limited room for price drops before the Lunar New Year. They do not rule out a slight increase in prices against the backdrop of concentrated replenishment, prompting many to stock up on goods they will need before the year ends. Second, there has been a slight improvement in end-user business towards the end of the year. Domestic sales were relatively poor in November but showed slight month-on-month improvement in December, with some leftover orders emerging as the weather turned colder. Additionally, foreign trade business has seen a rebound, with recent increases in orders for both PFY exports and fabric exports. The rise in export orders was partly due to seasonal factors; normally, December to January is a window period for foreign trade orders due to the Chinese New Year. However, there may also be replenishment driven by low PFY prices, especially for filament exports. It is currently unclear whether there are any factors related to the U.S. seizing export opportunities.

Against the backdrop of low absolute prices, downstream tolerance for finished product inventory was also increasing. During the survey made by CCFGroup, some bosses in the DTY and fabric manufacturing sectors reported that although business is not ideal at the year's end and finished product inventories are accumulating, they are still maintaining high operating rate. This is partly due to concerns about recruitment issues next year and hopes for good demand performance in the first half of next year to help digest these inventories. According to statistics, the overall inventory of grey fabric in downstream fabric mills is already higher than in previous years, significantly exceeding last year's levels.

After this concentrated replenishment by downstream plants, PFY factory inventories have dropped to low levels, while downstream fabric mills face a dual high inventory situation of both raw materials and finished products. Most downstream plants have not yet stocked up for after the Lunar New Year, so it is expected that there will be one last wave of replenishment before the Spring Festival, likely around mid-January when downstream companies begin to take their holidays. At that time, the amount of stock they decide to prepare for the Lunar New Year will likely depend on the discounts offered on PFY prices.

Entering January, attention should be paid to the intensity of Spring Festival maintenance in PFY factories. Currently, the maintenance plans that have been confirmed is still relatively low. Downstream DTY and fabric mills are expected to take holidays from around January 10-15, with normal operations resuming around the 12th or 13th day of the lunar month, likely before February 10. The holiday duration will be around 20-30 days. If the maintenance of PFY companies during the Spring Festival is small, both PFY factories and downstream plants may face pressures from finished product inventories afterward, leading to reduced price-driving power for PFY itself.