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Insight | Time:Aug 17 2017 9:02AM
Impacts on polyester industry brought by environmental rectification
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Environmental rectification goes more and more intensive in Zhejiang and Jiangsu where amass polyester industry since 2016. In order to ensure success of Hangzhou G20 Summit in 2016, printing and dyeing mills were rectified in Zhejiang. Many printing and dyeing mills in and surrounding Xiaoshan and Shaoxing were required to shut down. Regulation on printing and dyeing extended to water-jet looms since early 2017. As traditional major areas with water-jet looms, Wujiang District, Suzhou bans new water-jet looms, including those received approvals but were not put into production, and planned to eliminate 30% or nearly 100,000 sets of total water-jet looms by end-2019, while Xiuzhou District, Jiaxing also strives to eliminate 37,480 sets of water-jet looms held by 2,246 households and shut down family workshops by 2018. Other regions like Changxing County and Binhu sub-district in Huzhou followed to rectify water-jet looms and environmental regulations were introduced in Xialvqiao in Keqiao District. With entry of Central Environmental Inspection team, a new round of environmental rectification has started in Zhejiang.

Short-term impacts on polyester industry chain
For polyester part, polyester plants in Zhejiang have completed boiler improvement during past years and pollutant discharge is relatively controllable. Polyester units operates normally except for shutdown of Nanfang’s 400kt/yr and Yijing’s 250kt/yr units. For weaving part, water-jet looms are rectified in the first place. Changxing and Binhu in Huzhou and Xialvqiao in Keqiao District introduced relevant regulations and closed some plants, but having slight impact on warp knitting machines and circular knitting machines. For printing and dyeing, dye price surges affected by environmental rectification. For example, price of Zhejiang Longsheng’s black disperse dye moved up to 2,600yuan/mt on Jul 27 from previous 2,400yuan/mt and offers of black disperse ECT300% were revised up to 30yuan/kg on Aug 3. Rise of dye price improved dyeing fee and fabric cost of weavers. Plants with printing and dyeing which have not met the standards for pollutant discharge were shut down.

Long-term impacts on polyester industry chain
Firstly, new capacity in polyester, water-jet looms and printing and dyeing will be limited on the whole. For polyester, new units are required to use natural gas-fired boilers in Jiangsu and Zhejiang since two years ago and those using coal water slurry-fired boilers will not be approved. New water-jet looms are banned in Zhejiang and Jiangsu where amass major producers. Printing and dyeing mills experience the same bans. Secondly, capacity elimination has impacts on downstream enterprises with larger pollution, such as water-jet looms and printing and dyeing. 20% of total water-jet loom are predicted to be eliminated, including 100,000 sets in Wujiang and 30,000 sets in Jiaxing and the elimination is divided into 2-3 years during which some plants may replace new water-jet looms with new air-jet looms and some plants relocated in South Jiangsu and Anhui, which will offset some influence brought by capacity elimination. 

It seems that environmental rectification has larger impacts on downstream industries than that on upstream polyester and downstream capacity elimination may result in decline of demand for polyester filament yarn. But in fact, excess capacity of polyester in past years was brought by soft end-users demand rather than polyester capacity mismatching downstream one. As a result, relative length of polyester and its downstream capacity generated low annual operating rate. PFY industry cut excess capacity in previous years. Many conventional chip-spun and small direct-spun enterprises were disadvantaged in cost competitiveness and shut down. In contrast, downstream did not cut capacity. Some backward small-and-medium-sized enterprises with water-jet looms and printing and dyeing survived and reduced their cost by utilizing loopholes of policies on environmental protection. However, with environmental rectification upgrading in recent years, downstream is promoted to reduce capacity and enterprises which does not meet the standards of environmental protection are shut down. Downstream industries improve capacity utilization, increasing profits and activeness in replenishment on the whole amid relatively stable end-users demand.

Downstream industries eliminate outdated capacity, prompt industry upgrade and increase profits and capacity utilization through the environmental rectification, which also improves initiative to stock up. In long run, environmental rectification restrains new polyester and downstream capacity and growth of new capacity keeps pace with that of downstream demand, facilitating healthy development of the whole industry. It is worth mentioning recovering downstream business especially water-jet looms and decline of grey fabric inventory after two-year rectification. Meanwhile, initiative of replenishment and polyester consumption recover largely (growth of polyester consumption was 8-9% in 2017 against over 8% in 2016), as well as profits of polyester. Therefore, proper environmental rectification may have positive impacts on polyester.
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