Polyester downstream: order intake in "vacuum period" amid multiple bears in March

Since entering March, there has been a seasonal improvement in order intake from downstream market, but the overall situation remains poor, with orders still below those of previous years. Many businesses feel the impact negatively, with several downstream companies reporting that this is the worst year beginning in recent years. Recently, some downstream DTY plants and fabric mills have begun to control their operating rates due to sales and inventory pressures, leading to slight production cuts in certain companies. For example, there have been reports of reduced output from DTY plants in Taicang, warp knitting mills in Haining and various water jet mills in northern Jiangsu. The operating rate of downstream plants seems to be peaking, and attention should be paid to the sustainability of these operating rate moving forward, especially after the low-priced inventory of raw materials purchased before is depleted. If order intake remains weak, it cannot be ruled out that operating rate may continue to be adjusted downward.

In March, downstream orders have been scarce, even entering a vacuum period for order intake. Some downstream clients have reported a 30% decline in business compared to the same period of last year, which is due to a combination of various unfavorable factors.

The foreign trade situation has been turbulent at the beginning of the year, significantly impacting exports in the short term. 1. Before Spring Festival holiday, there were concerns about additional tariffs being imposed after Trump took office, leading to a rush in export activities. The noticeable increase in exports in the last quarter of 2024 and January 2025 supported this point, indicating that some export orders were brought forward. 2. The U.S. imposed two rounds of 10% tariffs, which were implemented immediately, resulting in a clear impact on foreign trade orders, especially those destined for the U.S. This includes losses in order profits and the disappearance of some medium-to-low end orders. 3. Trump has announced plans to impose reciprocal tariffs on April 2, causing market panic over the possibility of further tariff increases. Due to the uncertainty surrounding future tariffs, some export orders are being cautiously postponed or remain under price negotiations, delaying the ordering process. 4. March marks the beginning of Ramadan for Muslims, leading to delays in orders until April. 5. Following the U.S. announcement of tariffs on all Chinese goods, the volume of small packages exported from China to the U.S. declined last month. According to data released by the General Administration of Customs of China on March 20, the value of small packages exported to the U.S. in February decreased by nearly 5% year-on-year. In the first two months of 2025, the total value of small packages exported from China to the U.S. reached $3.5 billion (47 billion New Taiwan dollars), reflecting only a 2.3% increase compared to the same period in 2024. In early February, President Trump announced tariffs on all goods from China and ended the exemption for small packages valued under $800, although this decision was later suspended. In recent years, Chinese shopping apps like Shein and Temu have taken advantage of this tax exemption loophole to export small goods to the U.S., resulting in a booming small package trade.

The domestic sales market is also facing various pressures. 1. The cold weather in February and March has impacted spring clothing sales, which in turn affected the order placement for the next season. 2. There is a high inventory in clothing sector, particularly due to poor sales in the autumn and winter of last year, leading to inventory accumulation. This has had negative effects, including a significant decrease in accounts receivable collection in the grey fabric and fabric sectors compared to previous years, which has also hindered the stocking efforts for knitted fleece fabrics in the first half of the year. As a result, businesses dealing with products like water jet fabrics, warp knitting in Changshu and Haining, and terry fabrics in Shaoxing are experiencing poor performance in the first half of the year. 3. 2024 saw a significant increase in the number of texturing, water jet, and warp knitting machines, with the highest ever additions in texturing and water jet machines. Given the limited demand growth after the Lunar New Year, the orders allocated to individual enterprises have been reduced.

As for market trend, there is a slight possibility of month-on-month improvement in downstream demand in April. On one hand, as the weather warms up, seasonal orders may gradually increase. On the other hand, with the end of Ramadan in April, orders may start to come in. However, the specific extent of this improvement needs to be observed, especially since the direction of tariff policies is critical. Due to the uncertainty and variability surrounding tariff policies, foreign orders are generally placed with caution. If the improvement in downstream demand remains weak by the end of March and in early-April, production cuts may accelerate in April, particularly around the Qingming Festival and the May Day holiday.