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Polyester filament destocking has a long way to go

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 Some polyester units started enlarging discounts from last weekend, and the substantial price cut extended to the whole market this Monday. Polyester units successively raised discounts for promotion to achieve a sound sales by end-Oct. Sales ratio of polyester products apparently increased on Monday supported by slightly rebounding PTA, and the sales ratio of PFY averaged at 170% that day by P.M.3:30, even higher at 300-400% in some plants. However, sales ratio obviously declined on Tuesday and Wednesday after this round of intensive replenishment, with average sales ratio only around 60-70% by P.M.3:30, which indicated that downstream buyers held cautious mindset and were inactive in purchasing.

Promotion in end-Oct greatly squeezed the cash flow of polyester products. Some large orders under low price have been not profitable, but the sales ratio of polyester plants failed to improve greatly, and the inventory was hard to reduce. The cautiousness of downstream sectors did not mitigate after polyester products close to cost line restricted by own dilemma. Firstly, downstream orders recovered in Oct compared with Sep, but the increment was worse than anticipated. Secondly, inventory of grey fabric hit yearly high now, not matter water jet or warp knitting. Capital was occupied by stocks, and the recouping of account receivable was slow; thus, capital was largely tight on downstream market. Finally, actual profit of downstream plants only slightly recovered when prices of products fell in line with PFY. Therefore, downstream buyers dare not restock when feedstock price does not bound to keep increasing.

Cash flow of polyester products (Unit: yuan/mt)
Date PET fiber chip POY150D FDY150D DTY150D PSF PET bottle chip
2018-10-31 192.85 217.8 -72.2 470 497.8 -7.2
2018-10-30 216.25 241.3 -33.7 490 551.3 16.3
2018-10-29 287.92 237.9 37.9 630 652.9 137.9
2018-10-26 589.22 829.2 529.2 430 969.2 289.2
2018-10-25 671.2 986.2 696.2 325 1056.2 371.2
2018-10-24 624.4 999.4 664.4 260 984.4 349.4
2018-10-23 602.92 1017.9 692.9 200 907.9 327.9
2018-10-22 609.67 1019.7 744.7 200 929.7 359.7
2018-10-19 623.15 1188.2 788.2 110 958.2 448.2
2018-10-18 659.5 1234.5 869.5 185 969.5 409.5
2018-10-17 530.88 1190.9 790.9 120 855.9 355.9
2018-10-16 446.33 1086.3 716.3 180 766.3 296.3
2018-10-15 382.45 992.4 607.4 75 627.4 207.4

Run rate of polyester and downstream market was high in the first three quarters of 2018, and the inventory was low, which was benefited from the re-stock cycle on downstream market, while the speculative demand apparently reduced after experiencing sharp up-and-down and various bearish news, so players started slashing stocks and averting risk. For downstream players, it is easy to lower stocks of feedstock. Thus, inventory of finished goods in polyester plants passively climbed up.

When will PFY plants effectively destock? After greatly price slash in end-Oct, PFY price has been near cost line. PTA market may stabilize and rebound slightly in short run, price of PFY is unlikely to slip further substantially in Nov and downstream players may show better mindset in Nov. But demand from downstream market may be hard to improve obviously after the Double Eleven and Christmas Day, which may be flat with Oct or slightly grow, so downstream mindset is difficult to recover dramatically. Sales ratio of PFY may be sound in later period cooperated with bullish factors, but may not last long.

All in all, if mentioned conditions can realize, inventory of polyester plants is likely to decline moderately in Nov, while the reduction may be limited. Besides, the destocking is only the transfer of stocks, not really consumed by downstream buyers. only by cutting production and slashing run rate can effectively decrease the high inventory resulting from high operating rate earlier. The polymerization rate before the Spring Festival is likely to decline in advance with high inventory of polyester and downstream sectors and in anticipation of meager downstream demand. In addition, the strength of production suspension and cut may be greater during this Spring Festival holiday impacted by falling prosperity on polyester market.

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