Contradiction focus: High cash flow and inventory of PFY Core Spun Denim Yarn

Polyester melting cost ended falling and consolidated during the National Day holiday supported by high crude oil price and the expectation of peak season. WTI declined to $69.12/bbl from $76.41/bbl in Oct, down by 9.54%, and is expected to reduce further.

Polyester melting cost stepped into downtrend again after the National Day holiday with plunging crude oil price, slack sales of PFY, dull demand, collapsing PTA and weak MEG market.

Cash flow of PFY greatly enlarged with substantially decreasing cost, with cash flow for POY and FDY 150D at 1,200yuan/mt and 800yuan/mt respectively, but the actual situation was worse than the paper profit. In anticipation of peak season in Oct, weaving plants and twisting units restarted production timely after the National Day holiday, and sales ratio of PFY inched up driven by rigid demand. However, downstream buyers became cautious in purchasing feedstock later on poor orders, mounting stocks of grey fabric and thin buying interest of apparel and textile enterprises, resulting into slack sales of PFY for successive 10 days and mounting inventory of PFY. Stocks of POY and FDY hit yearly high, higher than the level in Mar.

Different PFY plants saw various inventory, and stocks in mainstream big plants were far higher than the average level.

The contradiction of PFY sector is prominent among the whole polyester industrial chain. High stocks of PFY occupy capital and the value is degraded when feedstock price is decreasing. Current inventory has been close to the reservoir full point in some plants. High cash flow of feedstock means big price reduction risk for downstream players, which will dampen their buying interest, and speculative demand is expected to be hard to improve.

In short run, feedstock market is anticipated to follow the downtrend of crude oil market. Downstream players of PFY show feeble speculative buying interest and the rigid demand is also likely to shrink. Price of PFY is supposed to remain weak in short run with high inventory of finished goods and high cash flow.