FocusAsia polyester down 4%, to fall further

15 January 2008 04:34  [Source: ICIS news]

By Hong Chou Hui

SINGAPORE (ICIS news)--Asian polyester prices - down 4% amid poor demand and thin trades for the first two weeks of 2008 - are expected to soften further until the end of the Chinese New Year holidays, producers and traders said on Tuesday.

“The peak season is tailing off because buyers are more or less winding down production due to the Lunar New Year holidays in early February,” a producer from Taiwanese polyester maker Chung Shing said in Mandarin.

“Any purchases now are on a need-to basis to keep their production lines running or to top up their inventories,” he added.

Polyester staple fibre (PSF) 1.4 denier prices softened by 6 cents (€0.04) per kg cost and freight (CFR) China to $1.44-1.49 for the week to 8 January from last week’s level of $1.50-1.55/kg, based on global chemical markets intelligence service ICIS pricing.

Buyers said that they were simply tuning down their requirements in line with market forces and consumer trends.

“There’s barely a month to go before the Lunar New Year holidays and consumers have already started their festive shopping. If you haven’t produced your wares by now, they’re never going to reach the stores in time,” a downstream maker of garments from southern China said in Cantonese.

He added that after production, it would normally require another week for his goods to reach retailers within China due to the time needed for packaging, transport and distribution.

“That’s why we’re buying less polyester yarns because we’ve been operating at maximum capacity during December 2007. We’re winding down production because we also need to close our factory to enable our workers to return home for the festive period,” he said.

The Chinese government raised the cash reserve requirement ratio for the country’s commercial banks by 1 percentage point to 14.5%, making it the tenth such successive hike on 8 December.

This measure was undertaken to reduce excessive liquidity in the market to prevent the economy from overheating.

This led to a credit crunch in China with companies having to resort to cash to settle deals as the bar for obtaining credit had been raised.

Some Chinese end-users of polyester fibres and yarn makers, subsequently, were reluctant to purchase as they sought to utilise their free cash to pay wages and bonuses to their workers for the Lunar New Year holidays, producers and traders said.

“In the meantime, we’ll consider reducing our offers in order to secure deals but if prices reach a level which threaten our margins, then we may have to reduce our capacity,” said a northeast Asian seller for polyester fibres and yarns.

“This will prevent our inventories from piling up and eventually putting price pressure to bear on our products,” he said, adding that the price slump was likely to end only in May when the next China Import and Export Fair is held.

The China Import and Export Fair which takes place twice a year, is a barometer of export orders from China on a half yearly basis.

Market watchers were upbeat that demand generated by the Beijing Olympics in August, coupled with the removal of European textile quotas on Chinese polyester exports, would propel global demand in 2008.

Polyester fibres are used as filling for comforters and winter jackets while polyester yarns are utilised to make clothes.

Major producers of polyester fibres and yarns include South Korea’s Huvis, India’s Reliance Industries and China’s Sinopec Yizheng Chemical Fibre.

($1 = €0.67)

By: Hong Chou Hui
+65 6780 4359

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