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Insight | Time:Aug 10 2018 3:12PM
Some polyester plants cut back output under cost pressure
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The recent surge in PTA has led to a significant reduction in profits from polyester and downstream segments. Except for polyester POY enjoying favorable profit, most other polyester products are losing momentum, resulting in a significant reduction in profits to the break-even level or into the losses. The weaving mills is also facing the same situation, especially the warp knitting enterprises, because the orders are all settled with fixed prices earlier, and it is generally difficult for the weaving mills to collect payment. Thus, some enterprises do not have enough funds to replenish the raw materials in time. When the raw materials are skyrocketing, it is bound to lead to rapid shrinkage of profits, even losses, putting pressure on subsequent production. Therefore, some chambers of commerce in local weaving bases have proposed to suspend production.

Cash flow Semi dull POY150/48 FDY150/96 DTY150/48 water bottle chip PSF
2018/8/1 2.475 657.475 162.475 120 277.475 142.475
2018/8/2 -89.175 515.825 100.825 120 185.825 100.825
2018/8/3 -55.375 499.625 69.625 105 219.625 34.625
2018/8/6 59.775 509.775 49.775 65 309.775 109.775
2018/8/7 101.075 596.075 126.075 130 301.075 191.075
2018/8/8 51.05 556.05 76.05 120 251.05 141.05
2018/8/9 23.375 578.375 48.375 70 223.375 113.375

Considering coming peak season of weaving sector, labor, bank loans and stability of customers, the large-scale production cut will not appear, but the production is probable to be reduced somewhat. Bank loans, customer stability and other factors will not cause large-scale production suspension, but a large probability of moderate production reduction will still occur. More polyester plants showed signs of output cutback, mainly in PET fiber chip and PSF due to sales pressure and poor profit. For PSF, Huahong, Huaxicun, Desai, Nijiaxiang, Quandi, and Jiangnan, etc. have successively reduced production; and Yizheng Chemical Fiber and Luoyang Petrochemical also have plans to cut production. For PET fiber chip, Hengyi, Guxiandao, Hongtai, Shenghong, Tiansheng, etc. also reduced production to different degrees. However, the recent reduction in the production of these plants has resulted in a decline of polymerization rate by only less than 2%, mainly due to the small capacities of PET chip and PSF. The production cut alone cannot decrease overall polyester operating rate largely.

Whether PET bottle chip and PFY plants are likely to cut back output or not is worth attention. At present, sporadic PET resin plant is curtailing production such as CRC and Sanfangxiang, mainly because PET bottle chip is still profitable and Aug delivery is good. With PET bottle chip demand entering slack season, sales pressure will occur, and poorer margin may put PET resin into the output cut team following PET fiber chip and PSF plants.

As for filament yarn, with inventory level at historic low, the cost pressure could still be transfer to downstream sector. Moreover, the profit of POY was sound. Plants that produce conventional FDY coarse deniers may face pressure to scale down production first in later period if situation fails to improve, as they have already operated at break even, but the impact to overall market is supposed to be limited. Generally, PFY plants may not curtail production in large scale in Q3.
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