OUTLOOK ’14: China polyester bearish on high inventory, weak demand

By Sunny Chen

SINGAPORE (ICIS)–Spot polyester prices in China’s domestic market look set to continue falling in the months ahead as inventories have piled up amid continued weakness in demand, industry sources said.

This condition may continue into February, after the Lunar New Year, which falls on 31 January, they said.

Polyester partially oriented yarn (POY) 150D/48, a typical product of polyester filament yarn (PFY), was assessed at yuan (CNY) 9,900-9,950/tonne on 7 January, according to Chemease, an ICIS service in China.

Prices have been on a downtrend since late September because of poor demand, shedding about 16% from the high of CNY11,750-11,800/tonne that was hit in mid-January, the data showed.

Inventories at China’s polyester factories are at their highest in nearly six years.

As of last week, China has up to 10-30 days’ worth of stocks of PFY – the chief polyethylene terephthalate (PET) product – against the normal level of 10-15 days’ worth, according to Chemease.

The inventories are expected to continue rising during the Lunar New Year, as purchasing activities by downstream industries will be halted during the holiday period, which generally lasts a month, according to market sources.

To prevent a strong build-up in stocks, some 5m tonnes/year of polyester capacity would not be operational during the Lunar New Year celebration in China that spans the months of January and February.

These include Jiangsu Huaya  Fiber Co’s 360,000 tonnes/year polyester plant at Yixing that will be taken off line on 29 January for a 25-day maintenance, and Zhejiang Xiangsheng Group’s two plants with a total capacity of 400,000 tonnes/year at Xiaoshan that would be shut late this month for a month-long maintenance.

Jiangsu Senjo Chemical Fiber Co’s 200,000 tonne/year in Taicang is also due for a month-long shutdown from 20 January.

Polyester factories in the country are currently running at a reduced average rate of about 68%, which is expected to fall to 60% – the lowest average rate since 2008 – with the planned shutdowns late this month.

Most downstream plants, which have been taken off line ahead of the holidays, are expected to resume production in mid-February and this should provide impetus for polyester demand to pick up, market sources said.

But this restart date is tentative for most, as resuming production will depend on market conditions, they said.

“We made less profits than [the] last three years, and the labor costs have increased sharply in recent years. We decided to restart the units after the Lantern Festival [in mid-February],” one source from a downstream textile factory said.

“The orders were less and the profits were also shrinking, so there’s no need to resume productions early,” the source said.