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Insight | Time:Dec 23 2016 4:18PM
The reasons for improving PFY profits
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PFY profits recovered obviously in 2016. According to the Q3 fiscal report of Tongkun Group, Tongkun has achieve a net profit of 0.56 billion yuan in Q1-Q3 of 2016, up 460% year on year. The sum of Tongkun's profits in 2012-2015 totaled 0.556 billion yuan so that we can see the profits of the first three quarters of 2016 were even higher than that of the past four years!

It is predictable that other enterprises shared similar conditions and some FDY enterprises may even gain better profits than Tongkun as FDY profits were far more than POY profits and Tongkun is a POY-oriented company.

Table. Average PFY cash flows in 2012-2016
unit: yuan/mt DTY150/48 FDY150/96 POY150/48
2012 164.98 90.05 354.22
2013 432.68 24.20 134.08
2014 416.10 262.81 389.61
2015 403.61 -66.00 36.55
Jan-Nov,2016 343.00 255.00 75.00

The most important reason for PFY profit recovery was better supply/demand situation. In the past few years, PFY capacity expansion slowed down and operating rates lowered thus PFY production was curbed. In 2010-2013, the annual growth of PFY production was averagely at 12.4%, which declined significantly to 3% in 2014-2016. 2017 production growth is also projected at within 3%. As a result, pressure at PFY supply side eased obviously.

In addition, PTA plants adopted new price formula to fix cost and fluctuation of PTA prices flattened this year, which left lucrative profits to PFY plants. Based on CCFGroup price indexes of Jan 4 and Dec 22, PTA has increased by 855yuan/mt or $63/mt, up 19.93% or 11.05%. While in the same time, POY150D/48F and FDY150D/96F has increased by 2680yuan/mt and 3115yuan/mt, with a growth of 44.12% or 47.92% respectively.

Besides, crude oil uptrend added to appreciation of PFY inventory in PFY plants. Though judging by numbers, 2016 cash flows were lower than that of 2014. However, 2014 PFY prices were in downtrend so PFY inventory was devalued so the actual profits of plants were worse than that in 2016.

The average cash flows of POY, FDY and DTY150D are projected at 403, 593 and 417 yuan/mt in the fourth quarter, higher than 172, 458 and 437yuan/mt in the third quarter. Given Tongkun's Q3 net profit at 0.21 billion yuan, Tongkun may achieve a net profit of 0.35 billion yuan in the fourth quarter.
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