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Insight | Time:Apr 18 2017 4:25PM
Polyester industry under tightened liquidity
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Polyester industry went divergent in recent days. Polyester plants sales kept warming for many days as downstream plants moved to restock since the Tomb-sweeping festival so that their inventory has dropped to a normal level with that of some FDY plants even showing quite low. And plants profits showed passable since March.

Polyester feedstock, however, sustained weak. PTA spots price kept falling even backed by low PX-PTA spread and unit maintenance as well as geographical political factors. MEG also declined.

The short-term view of polyester products plants is quite positive as cash flow shows good and inventory declines. Yet in the mid-long term, supply and demand balance is not so positive. Despite of stock fall since end-March thanks to rising crude oil, weak polyester feedstock gave little support for sustained warming sales. What’s more, polyester product output increased by above 15% in the first quarter, and in the second quarter, Zhejiang Wankai, Zhejiang Hongjian, Zhejiang Longteng and Tongkun Hengbang as well as Jiangyin Chengxing are expected to put online new capacity. All these together indicates around 10% growth of polyester product production in the first half of 2017, while end-users demand, in sharp contrast is projected at around 4-5%. This means that polyester plants stock is bound to increase, while its removal will be very hard amid tightened liquidity.

For polyester feedstock, capital liquidity may be a significant factor for the commodity market in mid-long term. Despite of some decline since early Apr, SHIBOR (Shanghai Interbank Offered Rate) sustained high. In the past few days, CBRC or China Banking Regulatory Commission stated in an official document to guard against and control the risks in ten areas. Real estate credit and local governments’ debt regulation are to be intensified and repo leverage in bond investment be capped up. The tightened financing of local government may translate into falls in real estate sales and investment.

As for the polyester industry, China domestic/CFR China discount of some varieties with strong financial characters expanded in recent days, which increased the cost of financing. Take MEG for example, the average discount soared from 128yuan/mt in Feb to 210yuan/mt in Apr.

Thus a full understanding of the whole polyester industry needs a distinguishable view. For polyester feedstock, shortened liquidity, financial de-leverage and real estate regulation and other macro-economic factors fundamentally upset the market, while polyester product market are driven by high season and the bubble boom since the second half of 2016.

For PTA, supply and demand pattern may exert some impact. Maintenance in May-June of many units is to greatly ease oversupply and hiking inventory, coupled with current balanced downstream market, PTA may enjoy a moderate rebound in the short run despite of the pressure of commodity market.

PTA plant operation round-up in Q2
Company Capacity (kta) Location Operating status
Yisheng Dahua 3,750 Dalian shut in Apr 1-14, to resume during the weekend
Sinopec Yizheng 350 Jiangsu shut on Apr 6, to restart on Apr 27
Jiaxing/Tongkun 1,500 Jiaxing lower running rate since Apr 8
FCFC 1,200 Ningbo to shut for three weeks in May
Sinopec Yangzi 600 Nanjing turnaround in May 28-Jul 10
Liwan (NMC) 700 Ningbo turnaround in mid May-end Jun
Jinshan PC 400 Shanghai to shut for 30 days in Jun
BP Zhuhai 1,100 Zhuhai to shut for whole Jun
Hanbang 2,200 Jiangyin to shut in May-June, yet unsettled

For MEG traders, the market sentiment as well as social capital matters much. Though supply and demand is quite balanced in the short term, weak cost and market sentiment may cause the product to sustain weak.
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