PFY May Drop Further

The price of international crude oil declined sharply in May, especially in late May, and the futures price of crude oil delivered by June in New York Mercantile Exchange dropped 1.29 dollars to 86.53 dollars on May 31st, down 1.47%. The oil price of New York reduced 18.34 dollars, down 17.5% in May, which was the biggest drop in monthly performance since December 2008. In addition, the price of polyester raw material also dropped, the price of PX in Asia fell 155 dollars compared with the price at the beginning of this month, closed at 1,367 dollars (FOB Korea), and the quotation of PTA and MEG also declined in overseas market. At present, the market quotation of PTA and MEG was respectively 8,000 and 7,200 Yuan/ton, which dropped to 650 and 500 Yuan/ton respectively.

According to the current situation, we think that the price of polyester yarn will enter into the downward trends, the reasons are as follows:

The supply of PX exceeds demand due to high capacity of PTA. The PTA industry also was at a loss in May due to bad terminal market. Many new set of PTA plant delayed to run and some old device also began to reduce the rate of operation, so the whole market showed oversupply situation. Coupled with the price of tumbling international crude oil, PX price also had to plunge.

Because the fabric market in the downstream was not prosperous in the first half of this year, the government in China informed that it was impossible for them to carry out the large-scale stimulus plan, and the debt crisis of euro zone warmed up again. Therefore, the export condition was hard to change in the short term and the domestic demand was also difficult to break through.

It is said that the current inventory of polyester factory is about one-month amount, among which the inventory of FDY products reached 15-20 days, DTY was more than a month and POY was 2-3 weeks. Under such a great inventory pressure, the downstream will enter into the slack season. So the polyester factories will not stay calm and they have to reduce the price during the actual transactions.

Due to the unstable national macro policy and sluggish market in textile industry, which will enter into the peak period of repayment in June, the manufacturers and dealers have to cut price in order to deal with payments. Moreover, they will also reduce the price and even sell at a loss to attract the funds. At present, the ex-factory price of polyester factory is declining day by day, and the weaving market will also get into trouble, so the market participants are more cautious to purchase the raw material.

Generally speaking, the polyester factories have to cut the inventory under such a great inventory pressure in the upstream and downstream, and the promotion is the most direct way to digest the inventory. Therefore, it is predicted that the price of polyester yarn will deteriorate further in afternoon market.