Polyester downstream market review & PFY market forecast Raw White T/R Core Spun Yarn

Operation recovery of downstream plants　
Downstream plants were slower in recovering production after Lunar New Year holiday compared with past years, which was mainly because the return of non-local workers was late. With the deeper transfer of manufacturing industry into Chinese inland, many workers near the Zhejiang province chose to work in their hometown, resulting into less workers to Zhejiang and Jiangsu. Some chemical fiber plants and textile mills in Zhejiang and Jiangsu faced labor-recruiting problem this year and the wage of workers have commonly increased by 10-15%. By now, the operating rate of fabric manufacturing plants in Zhejiang and Jiangsu was at 45%, lower than the 55% in the same period of last year (lunar calendar).

Feedstock prepared of downstream plants　
It was learned that feedstock prepared in downstream plants was ample, mainly able to guarantee production for 20-30 days, and some can guarantee production till mid or late-Mar, which was mainly low-priced resources purchased before the Spring Festival holiday.

Orders of downstream market　
Most downstream sectors have orders at hand after holiday, but most of these orders were placed before the Lunar New Year holiday, focusing on export orders, and most feedstock has been locked in. New round of order placement may appear in end-Feb/Mar, still expected to be mainly export orders. By convention, most orders will be concentrate on export ones before May-Jun in the first half of year. Based on the customs data, exports of textiles and apparels in Jan 2018 grew by 9.2% to USD$25.06 billion. Besides, the Sino-US trade talk tends to fare better, so export orders may be not pessimistic before May, and the worries of domestic orders are mainly from the economic downward burden. In the past two years, massive new capacity was expanded in downstream fabric manufacturing market, which dampened the prosperity on textile industry to certain extent.

Procurement mindset of downstream sectors.　
Currently, downstream plants showed cautiously looking-on mindset when operating rate has not resumed completely, earlier feedstock inventory was ample, new orders remained unknown and the turnaround of polyester units was feeble, especially big plants with higher inventory burden, so some chose to continue watching to wait for a clear tendency. Downstream players are expected to restock after the inventory almost being used up. Even if crude oil or feedstock market turns to be bullish in short run, most downstream sectors are likely to retreat to sideline, with low buying interest. However, if price of PFY declines to the low level before the Lunar New Year holiday, downstream buyers’ procurement activity may be stimulated.

Operation of polyester plants 
PFY plants choose to stabilize price in recent period, but actually, the price is discounted. Most downstream plants will adopt looking-on mindset in recent period no matter PFY plants adjust up or revise down price, and sales are anticipated to keep sluggish. Therefore, most PFY plants offer stably, and are willing to discount offer for potential buyers.

Inventory tendency anticipation in PFY plants　
Polyester industry started destocking from the first month after the Spring Festival in 2018 in anticipation of rebounding commodity market on loose macro expectation and rising demand from downstream market on massive capacity expansion of downstream market. Thus, the destocking was early. But with weaker influence of these two factors, destocking is anticipated to start later this year. Based on the earlier feedstock prepared, PFY plants are optimistically anticipated to begin destocking in the second half of Mar, pessimistically in end-Mar/early-Apr.

Price forecast of PFY 
Actually, many PFY plants have discounted offers and price faces bigger downside pressure with bigger inventory pressure. Currently, feedstock cost support sustains, and orders of downstream sectors need further observation. Price of polyester filament yarn is expected to have limited downward room, and future price is supposed to fluctuate with feedstock cost, while the profit is likely to be squeezed.