Since mid-to-late October, the polyester market has returned to a relatively deserted state again.
Downstream textile links are not only facing a decrease in the number of new orders, but early orders are also affected by factors such as rising sea freight and the appreciation of the RMB exchange rate, resulting in greatly reduced profits. This has dealt a blow to the purchasing enthusiasm of textile companies, so the demand for polyester yarn has recently dropped significantly month-on-month. Changes on the demand side are fed back to prices, resulting in a volatile and weak trend during this period.
Taking POY as an example, the average price in November was around 5,100 yuan/ton, a month-on-month decrease of 5.2%. It was not until the end of November that polyester cash flow profits showed a significant loss, and the factory became willing to raise prices.
Figure 1 Polyester filament POY price and cash flow trend in 2020 (unit: yuan/ton)
As for the market outlook, the author believes that it will remain stable in the short term It is more likely to fluctuate at low levels, and it is difficult to see a reversal trend in which polyester prices continue to rise sharply.
First of all, the most fundamental reason is that the polyester yarn market cannot get out of the short-term supply structure.
In the past two months, the operating rate of downstream looms has climbed to nearly 90%, which is much higher than the same period in previous years.
Figure 2 Changes in loom start-up in Jiangsu and Zhejiang in recent years (unit: %)
The emergence of this phenomenon is attributed to the inconsistent epidemic prevention strategies at home and abroad. caused by mismatch transfer. Since October, the foreign epidemic situation has worsened again, production activities have stagnated, orders have been transferred to the country, and foreign demand has increased significantly. At the same time, as the country is in the traditional peak season of “Golden September and Silver October”, demand recovery is relatively strong. The superposition of the two phases has resulted in a concentrated explosion in textile demand, which is a rare situation. It is basically unlikely that there will be greater room for improvement in the loom operating rate in the future.
Based on historical experience, the overall operating rate of looms showed a downward trend in the fourth quarter. The average decline in the operating rate of looms in December was about 10%. We have indeed seen the load turn downward recently. signs. Since the current operating rate is at a historically high level, and considering that some areas require early holidays before the Spring Festival and staggered holidays, it is expected that during the window period from December to mid-January this year, the decline in loom operating rates should be greater than in previous years, and may reach More than 20%.
In terms of polyester supply, the current factory operating rate is basically maintained at around 80%, which is at the mid-point level in previous years. In the past few years, the decline in polyester production rates in December has basically been around 2-3%, and the supply-side production reduction has been significantly smaller than the contraction in demand. Judging from the recent polyester operation situation, the production reduction of polyester factories before the end of December should not increase significantly compared with previous years.
Figure 3 Changes in polyester factory operation rate from 2017 to 2020 (unit: %)
On the one hand, the overall inventory level of polyester yarn is relatively low. Factories are not willing to reduce production. The current average POY inventory in polyester factories is around 10 days, which is about 30% lower than this year’s average inventory and basically equivalent to the average inventory level in the past five years.
Figure 4 Polyester filament inventory trend in 2020 (unit: days)
There is still a relatively obvious inventory differentiation phenomenon between factories of different sizes. The inventories of factories with a scale of 200,000 to 400,000 tons are mostly within 5 days, and oversold situations are common. Small factories basically have no need to reduce production and destock.
Figure 5 Polyester factory inventory differentiation in 2020 (unit: day)
Although the inventory levels of large factories with a scale of more than one million tons are slightly higher, Its financial strength is relatively strong, and it is more willing to accumulate a certain amount of inventory to bring cost advantages in the future, and its willingness to reduce production is also weak. Generally speaking, the inventories of various factories are at a relatively comfortable position, and it is difficult to actively reduce production due to inventory pressure.
On the other hand, although all specifications of polyester yarns are currently experiencing losses to varying degrees, from a full-year perspective, the average annual cash flow profit of polyester yarns is still above the profit and loss line, and the POY year is relatively weak. The average cash flow is also around 50 yuan/ton, which is enough for polyester factories to insist on large-scale production cuts until one month before the Spring Festival.
From the perspective of specific data, some factories in Zhejiang will be shut down due to boiler renovations before the end of December, and the actual production reduction will be about 1.5 million tons. Coupled with possible early production cuts and temporary shutdowns in previous years, the overall polyester yarn operating rate is expected to drop by around 6-7% at most.
To sum up, the contraction in demand in the short term is much greater than the decline in supply. The polyester supply and demand structure in December will inevitably tend to deteriorate as in previous years. The polyester market essentially lacks the possibility of reversal. Possibility, it is expected to remain low and volatile.
However, we should not be too pessimistic about the polyester market. Taking into account the current general cash flow losses of polyester yarns, the price of polyester yarns will rebound slightly in the near future following the raw materials. At the same time, good news such as vaccines and crude oil production cuts still stimulate market output.With the possibility of short-term pulse market conditions, the polyester market will not be a stagnant water.
In the medium to long term, it is inevitable that the epidemic will be overcome and the economy will return to normal development. The person in charge of the “Extreme Speed” vaccine project in the United States said that vaccinations will begin around December 11 at the earliest, and the vaccination rate in the United States is expected to reach 70% by May next year.
From this point of view, the traditional peak season of “gold, three, silver and four” next year is still relatively optimistic. Therefore, when polyester prices are low, there is still the possibility of stockpiling before and after the Spring Festival. </p
