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Judging industry prosperity from semi-dull and bright FDY price spread

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Core Tip:Semi-dull and bright PFY cost is similar, and their price shall be flat theoretically speaking. However, price spread be
 Semi-dull and bright PFY cost is similar, and their price shall be flat theoretically speaking. However, price spread between the two often shows cyclical change. Currently, bright PFY price is obviously higher than semi-dull PFY, and the spread has reached 600-700yuan/mt.

Take Apr 22 average price as an example, bright PFY price is way higher than semi-dull PFY. In terms of related products, semi-dull chip is cheaper than bright chip, but spread is merely 100yuan/mt, indicating problem lies with PFY itself.

22-Apr SD 50/24 Bright 50/36 50D SD-Bright
  9950 10610 -660
  SD 75/36 Bright 75/36 75D SD-Bright
  9300 9940 -640
  SD 150/96 Bright 150D 150D SD-Bright
  9010 9700 -690
22-Apr semi-dull chip Bright chip SD chips-Bright chip
  7700 7800 -100

Reason held responsible for stronger bright PFY could be found in supply demand structure. According CCFGroup statistics, FDY new capacity launch and old units restart totals over 2.4 million tons in 2017-2018, which is numerous. Structurally looking however, apart from few cationic PFY capacity, remainder are all semi-dull FDY capacity, no single bright FDY unit is launched. In 2019, China FDY capacity expansion is not much, merely 400kt/year, but still no sign of bright FDY. Such big supply gap is the major reason.

In perspective of demand, semi-dull PFY is more like normal spec while bright PFY is more like differentiated product. When industry starts to prosper, normal products profit rallies and demand is larger, hence factories intend to expand its capacity. Later, with supply pressure emerging, normal products’ cash flow squeezes, this is also when the industry enters downturn. Semi-dull FDY just experienced the described rise and fall cycle since end 2016. Hence, semi-dull and bright PFY price difference could partly reflect the industry cycle.

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