FocusChina polyesters may dismiss staff at month's end

04 December 2008 04:53  [Source: ICIS news]

By Hong Chou Hui

SINGAPORE (ICIS news)--Some Chinese polyester manufacturers are releasing workers a month earlier than usual ahead of the Lunar New Year holidays, which fall at the end of January, sparking concerns that this could be a precursor to permanent job cuts, market sources said on Thursday.

Polyester plants have been struggling to keep afloat amid the credit crunch, falling exports and weak polyester prices, but Chinese banks have so far resisted their attempts to shut down.  

“The holiday is the perfect excuse to send our workers home and shut down the factory. It’s a perfectly legitimate reason and the banks won’t be able to dispute it,” said an executive from an eastern China-based polyester maker in Mandarin.

The closure of China’s polyester makers could begin at the end of this month as preparations for the Lunar New Year festivities would be over by mid-December, he added.

Year-end export orders from the US and Europe, which provide the bulk of the Chinese polyester sector’s annual profits, have taken a beating in recent months in the wake of the global financial malaise.

“The domestic demand for Lunar New Year has kept the polyester sector afloat from mid-November. Once that’s over, it’s going to a long lull season from January to perhaps April or May next year,” said a trader with a Shanghai-based firm in Mandarin.

Downstream textile and garment makers were only buying now because they felt that prices had bottomed out, and this could erode post-January demand as end-users’ inventories would be well stocked, he said.

A veteran market watcher in Asia estimated that up to a quarter of China’s small-to-medium polyester makers could potentially turn the holiday shutdown into a permanent one to exit the business.

“We cannot stop the factories from shutting down for the Lunar New Year holidays but we will monitor the situation on a case-by-case basis. If necessary, we will resort to legal means to prevent potential default situations,” said a source from the Agriculture Bank of China in Mandarin.

For small-to-mid sized polyester staple and yarn (POY) firms, operating rates were said to be between 50-60%, while larger ones were running at 80% and above. A small-to-medium-sized producer is categorised as having less than 100,000 tonnes/year spinning capacity.

China’s government had recently announced a yuan (CNY) 4 trillion ($582bn) stimulus package in the hopes of spurring the domestic economy and preventing wide scale layoffs in the manufacturing industry.

($1 = CNY6.87)   

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By: Hong Chou Hui
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< previous article(ICIS Chemical Business podcast November 2, 2009)

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