Polyester polymerization rate slowly recovers, inventory becomes new test

With the Lantern Festival passed, polyester and downstream industries are theoretically expected to gradually return to normal. However, preliminary calculations suggest that the polyester polymerization rate may be around 86% at the beginning of this week, which is still slower than the recovery seen in previous years (when compared to the lunar calendar).

Based on current operating rate simulations, it is initially estimated that by the end of February, the polyester polymerization rate may be around 88-89%, and reaching 90% might have to wait until early-March. Given this situation, the average run rate for February is expected to be slightly below 85.5%, which is a downward adjustment from earlier expectations. Overall, the average operating rate for January and February this year is not higher than the same period of last year. (Due to the uncertainty of some facilities' start-up times, some figures remain estimates, so there may still be fluctuations in future operating rate.)

The recent fluctuations in polyester polymerization rate are significantly influenced by the new maintenance of facilities after the Spring Festival holiday. From last weekend to the beginning of the week, Dragon Special Resin's 250kt/year PET bottle chip unit, Wankai's 550kt/year PET bottle chip and Sinopec Yizheng's 500kt/year plant successively started turnaround. China Resources Chengold and Zhuhai's plants gradually restarted during this time, but the overall operating rate of PET bottle chip plants has fallen to below 70%. Except for PET bottle chip, Hengke, Sinopec Yizheng and Xianglu's units also had maintenance last week. Two PFY units in Xinfengming plan to have turnaround theoretically, which also affects the polyester polymerization rate.

PET bottle chip market is significantly impacted by the turnaround after the holiday and witnesses low operating rate. However, PSF and PFY market performs relatively better, but the recovery of some units is still slower than earlier anticipation. Nevertheless, these units under turnaround are theoretically expected to resume operation by March.

However, a new question arises: what about the inventory?

Currently, the inventory of POY is near 20 days and that of FDY is around one month, and just over half a month for polyester staple fiber. Compared to the same period of last year, the current inventory is not at its highest, but there are several noteworthy points:

1. The current inventory is shown as equity inventory, but attention should be paid to the issue of physical inventory, especially given the large number of open positions this year.

2. In the context of continued lackluster sales ratio, inventory is showing a gradual uptrend, and with the increase in operating rate, this trend may accelerate.

3. Comparing products, FDY inventory, which better reflects downstream demand, is rising faster than POY inventory. In terms of price spread, while upstream price spread is acceptable, the price spread of DTY150/48 has fallen below 1,200yuan/mt since January and has continued at that level.

4. If the downstream raw material stocking is considered normal pre-holiday operation, then the high inventory of grey fabric becomes a significant factor dragging down market sentiment.

Lastly, and perhaps most importantly, is the actual demand. From current market feedback, various products are generally facing a lack of orders, primarily producing pre-holiday orders or part of the inventory, and some factories have even temporarily decided not to start up. In fact, even as the Lunar New Year approaches, some enterprises were still collecting debts, and in the context of unclear post-holiday demand orders, the market sentiment is indeed relatively cautious.

In reality, aside from filament and staple fiber, the recent concentrated maintenance of PET bottle chips may also stem from inventory pressure. During the Spring Festival, with the operating rate below 80%, the inventory remained high in factories, which indicated the pressure from low market delivery volumes.

Currently, at the initial stage of market recovery, it cannot be ruled out that there are certain emotional factors due to the unclear market conditions. Taking PET bottle chips as an example, if the market delivery volume gradually increases, order intake improves, and as maintenance progresses and social inventory continues to be digested, perhaps the market will gradually welcome a period of easing. However, under the current market atmosphere, sentiment recovery may still take some time, and February is likely to maintain a relatively tepid market situation.