Upstream and Downstream Is Hedging, Polyester Yarn Price May Consolidate

After Spring Festival, the polyester yarn price in Jiangsu-Zhejiang Area was contrary to the same period of past years, which continued to keep cool. While in this week, it became hot rather than cool. This Tuesday (Feb. 22), a local spinning manufacturer reported that their FDY 50D series, DTY series and POY 150D/144F products generally increased 100 Yuan/ton. A local manufacturer in Taicang increased some individual specification of FDY products for 100 Yuan/ton. In Xiao Shan, a mainstream POY manufacturer’s quotation generally increased 150 Yuan/ton, while another POY manufacturer there also increased the quotation for 100 Yuan/ton, and the other manufacturer increased 200 Yuan/ton. The situation of a local mainstream manufacturer in Tong Xiang was that, among the light FDY products, except the yarn whose fineness is below 150D kept the original price, other products all increased 100 Yuan/ton; the industrial yarn increased 500 Yuan/ton. The DTY price kept stable. Among the POY products, the cation 75/72 increased 500 Yuan/ton, 150/288 increased 1000 Yuan/ton; and other series unchanged. On Wednesday, a local spinning manufacturer in Shengze increased 100-150 Yuan/ton for part of DTY products and others unchanged. A mainstream manufacturer in Taicang increased 100 Yuan/ton for part of the fine denier FDY yarn and routine products of POY. A local POY factory in Xiao Shan continued to increase the quotation for 100 Yuan/ton. A local factory in Tong Xiang increased light FDY products for 200 Yuan/ton; and increased semi-dull FDY, POY and DTY products for 100 Yuan/ton. On Thursday (Feb.24), the manufacturer in Tong Xiang continued to increase the quotation for 100 Yuan/ton. In can be seen from the above data that, that actual increasing rate of the overall polyester yarn price is not high, but the sales in these 3 days are flourishing; the production-marketing is around 200% in average. In the most prosperous day, Feb.23, some manufacturers’ production-marketing even reached 400%.

The factors that cause this hot situation are as follows.

A, the February’s raw material settlement price was highly disclosed. On Feb. 22, Sinopec Chemical Products East China Sales Company announced the February’s settlement price of PTA contracts, which was 11,950 Yuan/ton and increased 1,200 Yuan/ton compared with it in January. The settlement price of MEG in February was 10,250 Yuan/ton, which raised 800 Yuan/ton. The semi-dull poly chips’ settlement price in February was 13,750 Yuan/ton and the light poly chips was 13,750 Yuan/ton. All of the quotations for March were 14,200 Yuan/ton.

B, the international crude oil prices violently boosted. By Feb.23, at NYMEX, the futures price of the light oil delivered in April closed at 98.10 dollars/drum and the increasing rate was 2.8%. This created a new high since the highest close price on Oct. 1, 2008, as its intraday price has almost reached the key resistant level, 100 dollars/drum. Compared with the same period last year, the NY crude oil price has already increased 24%.

Therefore, influenced by the strongly increasing tendency of the upstream raw material, the downstream weaving manufacturers generally hold an opinion that pushed by the cost, the polyester yarn price will still rise. Moreover, some polyester yarn manufacturers increased the price as an inducement, which caused the downstream weaving manufacturers’ panic and they had to enter the market to do the cover.

The present oil price is still boosting, then what about the polyester yarn price afterwards? In my opinion, the polyester yarn selling will still focus on the amount. The reasons are as follows.

Firstly, the downstream market is lack of interests in a short term.

1, lack of labors and increment of cost. Since the beginning of lunar New Year, Labor Shortage happened in the costal advanced areas like Jiangsu-Zhejiang and Shanghai and Pearl River Delta. As a labor intensive industry, weaving industry requires especially huge amount of labors this year. In the important weaving places like Shengze, China. Most of the weaving factories are lack of workers, which means to stop operation of the machines. According to some incomplete statistics, the operation rate of the water-jet and air-jet machines in still around 70-80%. Affected by the Labor Shortage, the salary increment will be the only way to reemploy the workers. Not to mention the increasing raw material price that forces the weaving manufacturers to increase the textile prices. I was told that the gray fabrics prices of the routine products generally increased 0.2-0.3 Yuan/M, while the high class fabrics increased 0.5 Yuan/M. After this run of sharp increment of the prices, some of the orders at the early time will be canceled, how would the terminal market to accept this? This diploma has to be solved jointly by the weaving factories and the terminal customers. Therefore, the order amount will not be big in a short term.

2, harder for the manufacturers to finance, cost increased. Since Feb. 24, the central bank formally raised deposit reserve ratio of the financial institutions by 0.5%, making the large domestic financial institutions to deposit reserve ratio to 19.5%, a record high. Within two weeks of this month, after the interest hike on this 8, this is another tightening tool that central bank resorted to. From last year, in order to curb price increase and inflation, the central bank’s tightening liquidity policy never stop. It is the second time that central bank raised the deposit reserve ration this year, as well as the 8 times since last year. The tightening currency policy also tights the loan limits of commercial banks. As I know, in February, most of the banks in Shengze no longer make lending. Hence, with the tightness of the bank loan, weaving manufacturers will not stock great amount of raw material by cash.

Secondly, the upstream raw material is profitable in a short term.

1, the crude oil price is hard to drop in a short term. The political situation is becoming more and more intense in the Middle East and North Africa day by day. After the ex-president in Egypt, Muhammad ?usnī Sayyid Mubārak’s resignation, in countries include Iran, Bahrain, Yemen, Libya and Iraq, big-scale mass demonstrations broke out in succession. Among the countries, the situation in Libya is getting more and more severe. This is bound to play a supporting role for the international oil price.

2, polyester industry chain began the centralized repair, and the short supply situation is difficult to change. As is learned, the PX devices, Taiwan CPC No.1 (150 thousand ton/year) and No.2 (200 thousand ton/year) planed to have maintenance for 30-35 days. While five PTA enterprises include Ningbo Mitsubishi, Far East Petrochemical, Xianglu Petrochemical, Tianjin Petrochemical and Ningbo Formosa Plastics Group preliminarily planed to have periodical repair in March, which involved 5.15 million tons of capacity. Besides, the increasing speed of last year’s polyester capacity is all higher than the PX and PTA, so the short supply situation is difficult to change in a short term.

Lastly, the polyester itself has hardly any movement.

Since the beginning of this year, affected by various unfavorable factors (like lack of labors and increased cost), the tendency of weaving industry was flat and the operating rate of the machines is low. The relatively demand for the material is low, besides most manufacturers has already made the cover before the Spring Festival. Therefore, the manufacturers are mainly using the stock material to produce recently. This brings a dramatic increment of material’s storage of the polyester yarn manufacturers, while the mainstream manufacturers’ storage is all over 20-day amount. Hence, the recent selling strategy of the polyester yarn manufacturers mainly focuses on the amount and the price increase will only be small.

In summary, in a short term, no matter the upstream or the downstream cannot dominate the overall tendency. As the polyester yarn itself is staying at a tiny profitable period, although the manufacturers want to increase the price attributes to the cost, the downstream is hard to accept this according to the present situation. Therefore, in my opinion, the polyester yarn price will still be in consolidation in a short term.