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Polyester downstream &upstream market in game

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 Polyester market embraced the biggest fluctuation on last Friday.

Polyester feedstock sector, PTA and MEG futures all hiked.
Spot and futures PTA and MEG soared on last Friday, and the polyester feedstock cost surged by 150yuan to 7,232yuan/mt.

Change of PFY price and melting cost after Spring Festival holiday (Unit: yuan/mt)
Date POY Polyester cost
12-Feb 0 66
13-Feb 0 -127
14-Feb 0 -114
15-Feb -40 -69
18-Feb 0 71
19-Feb 0 -45
20-Feb 0 -22
21-Feb 0 61
22-Feb 0 -50
25-Feb -145 42
26-Feb -80 -112
27-Feb -5 0
28-Feb 0 3
1-Mar -100 150

The feedstock raise was mainly affected by stocks and commodity market. Besides, PTA traders were active in purchasing impacted by the raise of PX ACP in Mar, the scheduled turnaround of some PTA and PX units in May, and the sales suspension of PTA suppliers, while polyester plants mainly adopted sidelined attitude. Meanwhile, MEG market witnessed active transactions, and traders showed high buying interest, greatly pushing up price.

Contrary to the uptrend on polyester feedstock market, PFY plants slashed price for promotion

The recovery of operating rate in downstream twisting units and fabric manufacturing plants was slow after Lunar New Year holiday, but the comprehensive run rate of twisting plants in Zhejiang and Jiangsu, fabric manufacturing plants in Zhejiang and Jiangsu and fabric manufacturing plants in Fujian and Guangdong has increased to around 75%, 81% and 45% respectively; therefore, rigid demand supported PFY price.

In late-Jan, downstream twisting units and fabric manufacturing plants intensively restocked before the Lunar New Year holiday, and PFY plants saw apparently reducing stocks, with stocks for POY, FDY and DTY at 2.4 days, 8.7 days and 11.6 days respectively. The feedstock prepared in downstream plants can mostly guarantee production until Mar 10-30, so the demand was pulled forward.

Sales of PFY remained subdued since late-Jan and were suspended during the Spring Festival holiday. Stocks of PFY rose rapidly despite of around 835 million tons of production cut and suspension during the holiday. By end-Feb, stocks of POY, FDY and DTY accumulated to around 17.2 days, 18.9 days and 28.6 days respectively. Seen from the historic data, overall PFY inventory has accumulated obviously but only stocks of POY were higher than the inventory after Spring Festival holiday in 2018. After some big plants substantially expanded capacity, inventory burden was higher than past year even with the same inventory level.

Inventory peak of PSF and PFY before and after Spring Festival in 2018-2019 (Unit: days)
Inventory peak after Spring Festival in 2018 16.2 33.3 19.5 15.9 Around Jan 20 (Lunar calendar)
Inventory peak after Spring Festival in 2019 (By Mar 1) 9 28.6 18.9 17.2 Jan 24 (Lunar calendar)
Inventory on Mar 1 6 28.6 18 15.4 Jan 25 (Lunar calendar)

PFY plants continued witnessing inventory burden after the Spring Festival, especially big plants. To stimulate downstream buyers’ purchasing interest, price of PFY was mainly adjusted down by around 100yuan/mt, and some plants enlarged discounts during discussion, especially for big orders. Basically, based on the spot feedstock price on last Friday, losses of POY were mainly around 200-300yuan/mt, and some FDY plants suffered deficit, with losses around 400yuan/mt for some orders.

Sales of PFY dramatically improved amid soaring feedstock and reducing PFY price, resulting into mitigated inventory burden in PFY plants.

In short run, demand support and inventory burden is supposed to coexist on polyester market

Supply and demand of polyester feedstock market does not change fundamentally. 
Supply pressure on PTA market has been mitigated after some suppliers suspended delivering, but overall supply doses not reduce. Supply/demand on PTA market is expected to be balanced in Mar, so inventory is hard to reduce effectively. Arrivals of MEG are supposed to be not small in short run, and the port inventory may accumulate further, so the spot MEG supply is likely to remain excessive. 

Feedstock market still needs to observe the propel continuity of macro and commodity capital to market tendency, and PTA and MEG market may return to play earlier tempo if the stimulus ends. PFY market will enter destocking cycle only after the downstream demand really recovered. During this process, the low processing fee of PTA and MEG is expected to support price.

Downstream demand is not pessimistic, but the game of time and space between upstream and downstream market exists. 
Under current run rate of twisting units and fabric manufacturing plants, PFY plants have entered destocking stage on the whole. The operating rate of twisting units and fabric manufacturing plants is supposed to basically recover the yearly high this week, which will boost rigid demand for PFY, so inventory of PFY in downstream plants is expected to reduce faster.

Overall orders for fabric are moderate, which can mainly last production until end-Mar and mid-Apr, with some even last into May-Jun. Currently, feedstock prepared in downstream plants is mainly 15-25 days, longer around 30 days and shorter around 10 days, which needs time to consume. 

The major contradiction on PFY sector is that the high feedstock prepared of downstream plants requires time to consume, while the high stocks of finished goods in PFY plants also need time to transfer, with time gap. Without particular stimulus, end-users’ buying interest is hard to improve as downstream players hope to wait for the appearance of low feedstock price. However, PFY plants hope to see inventory reduction as fast as possible. once the high inventory burden maintains, the inventory may face devaluation risk. In short run, it is a game period for downstream and upstream players. The sales ratio improvement is temporarily, lacking continuity. If downstream feedstock prepared declines to low level, and coupled with the rise of upstream feedstock market, sales of PFY are likely to warm up and the continuity may be good.

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