Optimistic about the improving polyester filament profit in 2025

Since mid-December, sales ratio of polyester filament yarn has performed relatively well, with inventory dropping to their lowest point of the year. There were two main reasons for this: first, downstream business improved significantly in December compared to November; second, the absolute price of PFY fell to its lowest level in many years, prompting concentrated purchases from downstream buyers.

After the significant reduction in PFY inventories, prices began to rebound from their low levels. So far, the price rebound has reached 500-600yuan/mt, and the profitability has also been noticeably restored, with the industry for conventional products like POY150D/48F recovering to 200-300yuan/mt.

Looking back at 2024, it can be said that the profitability of PFY has clearly underperformed expectations for two main reasons:

First, high production has resulted in a slow pace of inventory reduction, which has hindered the expansion of processing spread on PFY market. Although there was little new capacity added in 2024, production increased significantly, with an annual growth of 3.4 million tons, or 8.4%. The reasons for this substantial rise in production were as follows: 1) the utilization rate of existing facilities improved, especially during the Spring Festival when the operating rate was high, and for most other months, production was close to full capacity. According to statistics from CCFGroup, the average operating rate of PFY companies in 2024 was 3 percentage points higher than in 2023, contributing an additional 1.5 million tons of production; 2) 2023 saw the highest historical investment in PFY capacity, with a total of 4.37 million tons of new capacity introduced throughout the year. This new capacity contributed around 2 million tons of production in 2023, but in 2024, all of it was operating at full capacity, contributing over 4 million tons of production.

Second, the collapse of polyester raw material costs led to significant devaluation of high inventories, negatively impacting actual profitability in PFY factories. Although the fixed-price policy from major manufacturers in late-May 2024 temporarily boosted profitability in June, it resulted in accumulated inventory for the industry. In the context of high inventories, the sharp decline in oil prices and PX caused a collapse in polyester raw material prices, with PFY prices dropping from their peak to the lowest point of the year, a decrease of 1,400yuan/mt. Major manufacturers faced severe inventory devaluation, while some smaller companies, which mainly relied on post-price adjustments, maintained lower inventories and decent profitability amidst the major manufacturers' price support.

Looking ahead to 2025, optimistic view is held toward improving actual profitability of PFY sector for two main reasons:

First, the increase in PFY production is expected to continue to narrow significantly compared to 2024. In 2025, a total of 1.82 million tons of direct-spun PFY capacity is planned to be put into operation, representing a capacity growth rate of only 3.5%. However, in terms of production, given that the operating rate of existing facilities has limited room for further improvement and that new capacity additions in 2023 and 2024 were relatively low, the actual growth in PFY production in 2025 is expected to be around 2.2 million tons or more, which is a reduction of approximately 1 million tons over 2024. Additionally, with a significant increase in downstream DTY machines anticipated in 2025-estimated at 1,600 units and a growth rate of 6%-the supply-demand dynamics for POY are likely to continue improving. Most of the new POY capacity and production in 2025 will be located in provinces outside Zhejiang, which could lead to temporary supply tightness in the Zhejiang, benefiting the expansion of POY processing spread.

Second, the likelihood of significant inventory devaluation, as seen in 2024, is relatively low. In 2025, the supply-demand dynamics for upstream polyester raw materials, such as PX and MEG, are expected to be favorable, with processing spread likely to recover. Furthermore, given the depreciation of RMB, the downward space for the cost and price of PFY is limited. If oil prices maintain a stable range without collapsing, the costs and prices of PFY may see some upward movement, making it difficult for the kind of significant inventory devaluation that negatively impacted profitability in 2024 to occur again.

In the context of a potential 2.0 version of the U.S.-China trade war, its impact on the export volume of polyester downstream demand is not worrying, as China still holds a significant cost and scale advantage in both polyester and polyester downstream products. The shifting of orders may ultimately lead to exports in the form of raw materials or semi-finished products. However, this could negatively affect downstream profits and, in turn, limit the upward potential for upstream profits.