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More polyester plants to start cutting output amid muted sales
 The elasticity of polymerization rate started enlarging since the second half of 2018. Polyester plants showed stronger risk-aversion awareness when end-user demand weakened and PTA market was firm. The polymerization rate declined by 6% in May, 2019, covering 3.36 million tons of capacity, and the reason was similar to that in Aug-Sep, 2018 with high PTA-PX spread and mounting stocks of polyester goods. The devaluation risk of high stocks was expected to increase. More polyester plants that did not possess PTA capacity cried for output cut. 


Entering Jul, after a round of PTA upsurge, polyester market encountered the same problem. Although PTA futures slipped rapidly, the decrement of spot PTA only dipped by around 200yuan/mt. Some PTA units intended to have turnaround, spot supply was tight, and stocks are expected to decline; thus, PTA price still enjoys support in short run. Meanwhile, sales of PFY have started falling apparently since last Monday, with sales ratio mainly around 10-20% in the second half of last week, resulting into rapidly mounting stocks of finished goods and further dragging down price. PFY plants witnessed shrinking cash flow. The high stocks of polyester products are expected to face higher risk to devaluate. Polyester plants started calling for production curtailment again. By now, only some PFT bottle chip, PET fiber chip, and polyester filament yarn plants have started maintenance, such as China Resources, Far Eastern, Tiansheng and Xinfengming etc., involving around 990kt of capacity, more information could be found fromOperation change of polyester plants in recent period (by Jul 5) 


Downstream buyers presented cautious mindset after sharp up-and-down of PTA futures, showing stronger risk aversion awareness when stocks of feedstock and finished goods were high. Currently, most downstream plants concentrated on digesting feedstock purchased before and tried to minimize feedstock procurement. Some downstream plants that had low feedstock inventory at hand even considered to cut run rate or shut down temporarily, waiting for the reduction of feedstock price. According to the research made by CCFGroup, the feedstock prepared in downstream plants could mainly guarantee production after Jul 20. Sales of polyester filament yarn are expected to sustain low in the next 1-2 weeks, and stocks are likely to accumulate. 

As for polyester plants, although current stocks of finished goods are low, the devaluation risk of stocks should be alert in the future. Stocks of finished goods in polyester plants are expected to rise with lower buying enthusiasm of downstream players, and these stocks will devaluate apparently once feedstock price slips. Thus, making a good preparation to cut production may be the best choice for polyester plants. Some PFY plants presold a lot previously, so these plants may postpone production reduction amid the delivery issue. Generally, the operating rate of twisting units, fabric manufacturing plants and polyester plants are expected to decrease for a period, but the decrement may be not big, requiring to observe the situation in the second half of Jul.
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