FocusChina’s polyester sees longest boom since ‘03, rally to last

29 July 2009 08:50  [Source: ICIS news]

By Salmon Aidan Lee

SINGAPORE (ICIS news)--The polyester industry in China is currently in its longest sustained boom, mainly due to easy credit, and the market expects the rally to continue in the near term, sources said on Wednesday.

Except for brief periods lasting no more than four weeks in February and mid-May to early-June, prices of polyester grades have maintained an upward trend.

Between June and July, prices of almost all grades of polyester rose about yuan (CNY) 200-300/tonne ($30-44/tonne) each week.

“This is nothing short of a miracle. The last time we saw such a positive market for such a long, sustained period was in 2002-2003, when the polyester industry was booming,” said a source from Zhejiang Yuan Dong Polyester, a leading producer of synthetic fibres based in eastern China.

Polyester producers have maintained healthy margins and reported favourable sales this year, traders said.

Prices of partially oriented yarn (POY) 100 denier / 96 filament and polyester staple fibre 1.4 denier rose overall in the past six months, accumulating whopping gains of as much as CNY6,000-8,000/tonne, according to ICIS pricing.

Other grades of filament yarns registered even more spectacular gains. For example, drawn texturised yarn 75 denier / 36 filament spiked more than CNY1,000/tonne within a week in late April, and fully drawn yarn 150 denier / 96 filament surged CNY900-1,000/tonne in the first week of April.

“We’ve generally seen sales [against daily output] higher than 100%, or at worst, 80-90% in the past few months,” said a source from South Holdings, a producer of filament yarns in eastern China.

“There were occasions of poor sales, when [sales against daily output] fell to around 50-60%, but they were the exceptions rather than the norm and made us wonder if polyesters are truly oversupplied,” said a source from Jiangyin Hua Hong, a producer of polyester fibres in Jiangsu in eastern China.

Because of positive sales figures, and profitability sustained by the price spikes, polyester operating rates had also risen significantly in China.

Most market watchers estimated prevailing polyester operating rates in China to be around 85-90% of nameplate capacity, levels not seen since 2003.

“Previously, in 2004, 2005 or 2006, producing around 70% was considered acceptable, and anything more than that would be a bonus [to the polyester producers],” said a Chinese trader working for Samsung Corp, a South Korean trading house.

Product inventories among these polyester producers have also been low, averaging no more than 15 days’ worth for most of the past six months, market observers said.

“That’s fantastic, as operating rates [of polyester plants] are actually higher and yet we see brisk sales and low stocks,” said a China-based trader from Shanghai Bulk Chemical.

Another trader in China said he believed that the key reason behind the rosy Chinese polyester picture was because of the current loose credit regime.

“The [local] banks are disbursing loans almost totally freely, and businesses want to keep producing, keep operating in order to keep getting the loans, or even more loans,” the trader said.

This has come despite a gradual fall in fabric transaction levels at the benchmark China Textile City at Shaoxing over the past few months.

As of 28 July, transaction levels were struggling to be above 3m metres per day. In June, transactions hovered around 4.5m-5m metres per day, while for the most of March, April and May, transaction levels were no less than 5m metres per day.

“You can say demand for fabrics, from an ailing textile sector, is not strong. But we would keep producing, keep the stocks as the banks are in no hurry to get back the loans anyway,” said a Chinese trader of filament yarns and fabrics.

“This is very weird; China’s exports of apparels keeps falling and yet we see the polyester and textile factories keeping high operating rates,” said an official from SK-Zhenbang Chemical, a PET producer in eastern China.

“It might be a time bomb. Easy credit is making everybody work overtime and pushing prices up, and end-users, traders all chase after galloping costs of [purified terephthalic acid and monoethylene glycol],” said the official.

But like most other market players, the official could not predict when this demand-induced boom would end.

“There’s now no peak season, no low season [for the textile industry], just up and up as the downstream markets keep producing, and buying keeps continuing,” said a trader with Zhejiang Material Industry.

($1 = CNY6.83)

Yu Guo contributed to this article

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By: Salmon Aidan Lee
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