PX unit shutdown unexpectedly, PFY sales ratio approaches 1000% superfine hollow polyester fober

On April 7 afternoon, an explosion occurred at the LPG pipeline of Formosa Chemical and Fiber Corp's plant at Mailiao. Its three aromatics units were shut temporarily, and will be restarted in short term. The No. 1 aromatics unit is scheduled to shut in mid-Apr for maintenance lasting 45 days; and its No. 3 aromatics unit with PX capacity of 930kt/yr has no maintenance schedule.

Affected by this news, PTA futures May contract surged. As for PFY market, price of PFY stably rose in the morning, and some plants even discounted price by 50yuan/mt as the inventory has been high after 2-week of stocks accumulation. PFY plants were more eager to sell.

The reflection of the market was stronger than the actual impact of the incident, which could be seen from the sales ratio of PFY:

Sales of polyester filament yarn improved apparently in the morning, and the average sales ratio was assessed to 300% by A.M. 11:00, which was above 400% till P.M.3:00. The sales ratios of major plants were at 500%, 300%, 150%, 550%, 300%, 600%, 300%, 835%, 500%, 220%, 340%, 400%, 300%, 350%, 400%, 350%, 500%, 250%, 400%, 400%, 500%, 350%, 1000%, 600%, 700%.

Why are downstream players so active in purchasing?

1. The production cut of OPEC continued to be bullish for crude oil market last week, and oil price hit 5-month new high.

2. Downstream twisting units and fabric manufacturing plants witnessed slacker sales and meager profit or losses, but most did not intend to shut down in short run. Thus, rigid demand for feedstock existed. The feedstock prepared in downstream sectors has declined much. By last Thursday, the feedstock prepared of downstream plants was mainly around 10-15 days and shorter at 5-7 days. Actually, some plants that had low feedstock at hand needed to replenish after the Tomb-sweeping Festival.

3. The experience gained from the 2015 Dragon Aromatic blast, which was also during the Tomb-sweeping Festival. Stocks of PFY stocks rapidly declined after the Dragon Aromatic blast in 2015, and price soared by more than 1,500yuan/mt within half a month. Thus, end-users show strong speculative demand.

In short run, price of PFY is likely to follow the uptrend on feedstock market. However, different from the blast in 2015, the PX unit of FCFC can resume production at any time, so the supply is expected to recover quickly. Besides, private new PX units are scheduled to launch. As for demand side, downstream plants do not witness sound new orders, so the price may not accordingly chase up.