Will The Polyester Yarn Price Rise Again In China

 Closed at March.2, the futures price of light crude oil delivered in April in COMEX increased 2.60 dollars to 102.23 dollars/drum and the increasing rate was 2.61%. In London Market, the futures price of North Sea Brent oil delivered in April increased 93 cents, closed at 116.35 dollars/drum, refreshed the new high since August, 2008. Moreover, in ZCE, the main force PTA futures, contract 1105 once got close to the high price, 12,000 Yuan/ton. In PTA East China spot market, the buy offering also increased to 11,750 Yuan/ton; and the downstream inquiry was around 11,650 Yuan/ton, while the practical negotiated price was 11,700 Yuan/ton. The sell offering of PTA Taiwan goods as well increased to 1,520 dollars/ton; and the offering of the Korean goods was 1,500 dollars/ton. In the East China Home Trade Market, MEG’s mainstream offering was around 9,950 Yuan/ton and the inquiry of big orders was 9,900 Yuan/ton.

The mainstream quotation of semi-dull chips in Jiangsu-Zhejiang Market already rose to 13,900-14,000 Yuan/ton (3-month Acceptance), while the negotiated interval was around 13,850-13,950 Yuan/ton (Acceptance). Although the upstream raw material has been raising the price all the way long, the polyester yarn price in Jiangsu-Zhejiang Market did not have big change. In a month-time after Spring Festival till now, the overall polyester price in Jiangsu-Zhejiang Market almost kept unchanged, only some of the short-supplying products increased the price a little. However, when everyone was expecting the polyester price to fall back, it suddenly rose.

March.4, the increasing tendency appeared again in Jiangsu-Zhejiang Market. Although one of the local direct spinning manufacturers stabilized other quotations, they increased interest subsidiary payment to 300 Yuan/ton for 3-month acceptance and 600 Yuan/ton for 6-month acceptance, which is also price increase in disguise. One of the mainstream manufacturers in Taicang and Xiao Shan reported that most POY products increased 100 Yuan/ton. One big factory in Xiao Shan increased the quotation of POY 75D/72F to 17,450 Yuan/ton (cash) and another factory there increased the quotation of POY 75D/144F to 17,660 Yuan/ton. Besides, a mainstream manufacturer in Tong Xiang market also reported that most products increased 100-200 Yuan/ton and they quoted low-stretch DTY 150D/48F 16,700 Yuan/ton. All the manufacturers said that with the regulated prices, the buying activity became very strong in the downstream market, and their production-marketing was generally above 100%. I am sure about the price increase of polyester yarn after this regulation, but the increasing range is worth observing. My opinion is based on the following reasons.

First, the supporting effect of the upstream material cost is obvious.

Although the crude oil price slightly dropped overnight on March.3, its price was still above 100 dollars. In COMEX, by the close, the futures price of the oil delivered in April increased 32 cents to 101.91 dollars/drum. In London Market, the North Sea Brent Oil dropped 1.56 dollars to 114.79 dollar/drum. This brought the polyester raw material including PX and PTA to a strong position. As the profit of PX and PTA are huge (The profit of PX has reached 500 dollars/ton which is far beyond the historical highest record; and the PTA manufacturers also get the profit of 2000 Yuan/ton.), the manufacturers are lack of motivation to further transmit the cost to the downstream industries and the short-term impetus is not great, but the supportive functions is clear.

Second, the terminal market will not hold the straddling attitude for long; the rigid demand will increase.

The weaving industry went through a prosperous year last year. As most of the weaving factories had been lack of fabrics stock since last prosperous year, they looked forward to this year’s bonus. The weaving factories had successionally stocked the raw material or increased the devices to enlarge the production at the end of last year. While since the beginning of this year, difficulties like labor shortage is in front of the factories; with the correspondingly increased labor cost and rising material prices, the fabrics prices also had dramatically increment. Therefore, a lot of orders in the market had to be renegotiated with customers, which led to the unstableness of the production. Besides, the raw material consumption was low and most of the factories had to use the stock to make products. Recently, the problems faced by the factories before have been solved and the downstream orders have finished negotiation and been back to the factories, so the production is back to normal. Moreover, since last year, the weaving machines have had numerous increments in amount. According to incomplete statistics, the shuttleless looms amount is over 130 thousand in Shengze, China. The increasing rate of last year was 30%, which relatively increased the rigid demand of the market.

Third, the polyester yarn manufacturer is in the edge of deficit.

Although the polyester yarn manufacturer had an unpredictable chance last year, and the benefit had increased dramatically; this year is quite different. The negotiated price of PTA spot goods is 17,700 Yuan/ton and it of the MEG is 9,900 Yuan/ton. If calculated under this formula-0.86*PTA+0.33*MEG+1000= cost of POY, the POY cost was 14,330 Yuan/ton; however, the mainstream spot exchange quotation of POY 150/48F is 14,400 Yuan/ton now. The FDY cost can also be calculated by another formula -0.86*PTA+0.33*MEG+1200= cost of FDY and the cost is 14,530 Yuan/ton while its spot exchange quotation is 14,700 Yuan/ton. It can tell from the above calculations that the polyester yarn price is already in the edge of deficit. Hence, the previous selling strategy of the manufacturers mostly focuses on the amount; but with the rising production-marketing, they are bound to transmit the cost to the downstream.

Forth, the electricity limit policy come again, the market demand certainly will be affected.

It is heard recently that the electricity limit policy has already carried out in Jiangsu-Zhejiang Market. The common method that takes by the manufacturers is to work 5 days and rest 2 days. The policy also comes in force in Shengze and the general solution that the manufacturers adopted is to work 2 days and take 1 day off. This electricity limit policy is bound to shock the chemical raw material prices.

Last, the competitive advantage of the low-end products lost, the export very possibly will reduce.

March 3, the exchange rate of RMB against USD created a new high since the restart. According to CFETS, the middle rate of the exchange rate of RMB against USD is 6.5695, which increased 41 base points compared with last trading day and it easily broke through the 6.57 mark. At the same time of appreciation of RMB, the currencies of some countries in Southeast Asia, like Vietnam, are depreciating. Therefore, the present fabrics prices in Vietnam have 30% more profit than it in China. As the low-end products have low profit originally, the manufacturers are impossible to suppress the prices for competition. Hence, many orders of low-end products or those have low requirements have already sent to countries including Vietnam in Southeast Asia. The fabrics export in the aftermarket will be greatly affected.

In summary, the increasing tendency of the polyester yarn price is hard to change in a short term; but the increasing space is limited by the uncertainty of the overall fabrics demands in aftermarket.