The Downside Risk of PFY is Increasing

    PFY market was closed during the Spring Festival. As the first work week after the Spring Festival, the sales of PFY market were began to resume and even presented a good start as expected. During Feb.17th-18th, the quotations of most manufacturers increased 50-100 Yuan/ton and the production and marketing picked up to 50%. However, the good state didn’t last long. Afterwards, the market followed the stable tendency from Feb.19 to Feb.22. And several factories even began to offer some discount. Combining with the actual situation, the good start of PFY price was transient, and it was thought that PFY price would continue to decline in aftermarket.

    Firstly, downstream demand was difficult to improve. PFY price has been driven by downstream demand since the end of last year and this situation remained unchanged. However, the condition of current woven market didn't get better, especially affected by spring factors, which didn't fade away yet. Taking China-Shengze which is the biggest production and sales base of textile in China for example, woven factories are resuming production successively in recent days, and the peak of operating rate is just resumed to 50%. This is mainly caused by workers. There are around 20%-30% labor shortage in most factories. Most heads of factories reflected that the gap consists of two parts: one part is that some workers returned home for a holiday and still don't go on duty; the other one is that many of them held wait-and-see attitude or want to select good position. Therefore, according to the experience of former years, the labor shortage will be improved in early March and the production will also back to the normal level. In addition, there were many inventories in woven factories last year and the orders were little after the Spring Festival, so woven factories are in no hurry to promote the operating rate. Moreover, most woven factories stocked up the raw material for 15-20 days before the festival. Accordingly, judged from the above situation, the rigid demand of PFY in the short term is really depressed.

    Secondly, the inventory pressures of PET factories are increasing. Most woven factories gave a vacation in advance before the Spring Festival, but the production and marketing of PET factories remained the good level and the inventories were also normal. However, PFY market was closed around the Spring Festival, the production and marketing was little, so the inventories increased significantly. Now the inventories are generally around 25-30 days, which will close to the high level of the second half of last year. Moreover, there are still 10 days until the normal production of woven market now, it is expected that the inventories will continue to increase. Under high inventory pressure, the enterprises have to cut back production or slash price for promotion. And most enterprises will choose the latter.

    Lastly, upstream cost becomes flexible. Recently, Sinopec officially revealed the settlement price of PET raw material in Feb. PTA price dropped 75 Yuan/ton to 9,125 Yuan/ton, while MEG price declined 50 Yuan/ton to 9,150 Yuan/ton. Zhuhai BP also introduced the contract settlement price of PTA, it was 9,125 Yuan/ton, which declined 75 Yuan/ton compared with last month. Besides, Dalian Hengli Petrochemical Company implemented the settlement price of 9,125 Yuan/ton in Feb. which went down 275 Yuan/ton to 9,400 Yuan/ton compared with the listing price of PTA in Feb. However, the settlement price of PX in Sinopec increased 300 Yuan/ton to 12,800 Yuan/ton in Feb. So it seems that the high cost of raw material in PET upstream market has little promoting influence on industrial chain, downstream demand will play a crucial role in price in the short term. And PET industrial chain will be reversed in the short term.