FOCUS: Feedstock costs up China polyester prices

28 June 2006 04:38  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--Polyester prices have shot up in the key Chinese market, as fibre makers pass higher feedstock costs down to their customers, sources in the industry said this week.

However, they said despite the hikes, margins are just above break-even due to high cost of purified terephthalic acid (PTA) and mono ethylene glycol (MEG), key feedstocks for the polyster industry.

Cuts in operating rates seem likely if the seasonal lull typical for June and July finally kicks in, they added.

“Prices are higher mainly because of much higher PTA and MEG costs,” said a company source from Zhejiang Cifu, a major filament yarn maker in eastern China.

PTA spot prices rose $60-65/tonne to hit $945-950/tonne CFR China last week, and looked set to rise higher in the next few weeks. MEG prices rose less steeply, but still put on a robust $20/tonne to hit around $895/tonne CFR China.

Firm demand among end-users was also driving the prices higher, said officials from the China Textile City at Shaoxing in Zhejiang. Fabric transactions in this leading textile mercantile market hit 7.5-8m metres/day on Monday, underscoring the firm demand for polyester resins.

At peak times trade can reach 10m metres/day, while in weaker markets will fall to 3-4m metres/day.

Between last Wednesday and Monday, polyester staple fibre 1.4 denier rose a robust CNY400/tonne to CNY11,600-11,700/tonne ex-works in the key provinces of Jiangsu and Zhejiang.

Prices of partially oriented yarn (POY) 150 denier/48 filament put on CNY500/tonne to hit CNY12,200-12,300/tonne ex-works.

“We can sense the general positive mood,” said an official from Xiaoshan Xiang Sheng Polyester. Sales volumes in the industry against daily output have been consistently high at 90-100%, except for Monday when the numbers dipped slightly to 60-70%.

“Most importantly, our customers are still seeing orders coming in, and we can transfer the higher feedstock costs to them with the increased resin prices,” said a source from Zhejiang Heng Yi Polymers, another leading yarn producer.

Overall polyester operating rates were also at an encouraging 80-90% of nameplate capacity, said the producers, despite the fact that June and July are traditionally quiet months for the polyester and textile industries.

“This year it has been better, maybe because there has been no news like the US imposing sanctions on China’s textile products, and the European Union boycotting our goods,” said a Shanghai-based PTA and MEG trader.

“In a way, demand for made-in-China garments and other Chinese textile exports has been healthy since around April, so that could have also contributed to higher polyester prices,” said another Shanghai trader.

“So far, we can absorb the higher feedstock costs by hiking the prices of our products,” said the Cifu source. “But if feedstock costs keep rising while the prices of our products stop rising, we may have to consider cutting production.”

Already some fibre producers were considering reducing operating rates in July. Despite this week’s price gains, fibre producers could barely break even given feedstock costs.

“This uptrend can fizzle very soon,” said the Heng Yi source. “Yes, we see higher polyester prices and a delay in the seasonal lull. But we cannot defy the traditional lull, and July is not expected to be a good month for us.”

“If we don’t make profits anymore, it does not make sense for us keep producing. By July, polyester prices may fall and could very possibly lag feedstock costs again,” said the Heng Yi source.

Yao Wang contributed to this article.

By: Salmon Aidan Lee
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