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Insight | Time:May 25 2018 8:21AM
PFY and PIY price unlikely to continue dropping dramatically
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PFY price hard to present long-term downtrend
Entering May, sales of PFY started cooling down gradually, and minor discounts were seen since mid-May. Discounts enlarged this week, mainly around 200-300yuan/mt, and price was negotiable in actual trading. With decreasing downstream orders and pressure from environmental protection in some regions, will PFY price keep falling?

Price of PFY still has downward potential in end-May, but the downside room is supposed to be capped, hard to see downtrend, which is mainly attributed to the following reasons:

Firstly, Crude oil presents firm, so feedstock cost support exists. Although PTA and MEG market is soft, and PTA market may be in weak correction after units that are under turnaround resume production after Jun, feedstock downward room is supposed to be capped with strong and high crude oil price. Profit of PX has been squeezed apparently, and cash flow of PTA is around negative territory now, hard to drop greatly.

Secondly, inventory of finished goods is low in PFY plants, lower than past years. Price of PFY did not drop after Lunar New Year holiday with substantially falling feedstock price and high inventory. Currently, inventory of PFY is low and downstream plants are not fully replenished, so most PFY plants are not urgent to discount offer greatly. Why does PFY plants still cut price for promotion? Two major reasons are concluded: 1. PFY plants hold pessimistic view toward market trend. Jun and Jul is traditional slack season on domestic market, especially with intensified environmental protection regulation on downstream weaving industry. 2. Cash flow of PFY is still around 500-700yuan/mt under current discount range, so PFY plants are willing to discount for promition.

Thirdly, it is proved that it is effective to lower inventory by raising price. In the first half of 2018, downstream plants showed apparently feeble procurement willingness once PFY price stopped rising. PFY plants cutting price for promotion now is to make preparation for later price uplift. With the launch of settlement price in May, PFY plants are likely to raise offers next week and stimulate export under discounted level during this week, to promote sales in end month.

PIY price unlikely to dip further substantially
Increase of polyester industrial yarn slowed down entering Apr after experiencing continues rise after Spring Festival holiday. Slight discount appeared in mid-Apr but price stabilized for a short period in end-Apr. In May, trading price of PIY declined further. In early-Apr, high-tenacity PIY1000D was offered at 14,800-15,000yuan/mt on six-month credit and traded at 14,500-14,800yuan/mt. Currently, high-tenacity PIY1000D was traded at 14,000yuan/mt on six-month credit, lower around 13,500yuan/mt, down by around 1,000yuan/mt compared with level in early-Apr.

Trading price of PET bright fiber chip was mainly around 8,200-8,250yuan/mt, and cash flow of PIY was as high as 3,000yuana/mt if based on trading price at 13,500yuan/mt. Once price shows downward tendency, downstream plants will become cautious in replenishing, and rich profit of PIY may drop greatly at that time. Thus, end-May is a crucial time point. Whether price of PIY will keep decreasing substantially, touch bottom and then gradually climb up, or end decreasing and start rising or not should be highly noted.

Seen from the price trend, trading price of PIY did not seem to fall much, while low price appeared frequently in some regions, impacting players’ confidence prominently, especially when some plants in Jiangsu offering at 13,000yuan/mt.

Generally, price of PIY may be hard to substantially decline further when polyester feedstock increases in May and overall supply/demand status does not alter, not ruling out slight reduction in short run. Mainstream plants are likely to cut run rate and product structure to stabilized PIY price. Profit of PIY is supposed to be hard to be squeezed greatly in 2018 on supply/demand situation.
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