Low Demand May Lead Chemical Fiber Industry to Inflection Point

If only analyzed from the operating data, the situation of chemical fiber industry is good in the first half year, several indexes steadily increased on year basis. “The situation of the first half year this year is better than last year” is a common sense among the market insiders. However, if this result determines the second half year of the chemical fiber industry continues to improve, it will significantly deviate from the actual situation. The comprehensive analysis of the insiders said the situation of chemical fiber industry would not be optimistic and the overall level of this year will worse than last year.

According to the relative data supported by China’s Chemical Fiber Industry Association (CCFIA), January-May of this year, the chemical fiber production keeps increasing at a high speed; the output reached 13,302,200 ton, increased 15.43% on year basis. Chemical fiber exportation increased rapidly, the exportation volume reached 1,153,800 ton, dramatically increased 45.62% on year basis. The total profit of chemical fiber industry achieved 12,656 billion Yuan, increased 56.9% on year basis. Under these seemingly satisfactory data, there is one point that we should pay special attention to: Since April, the operating indexes of chemical fiber industry showed gradually decreasing tendency compared with previous months, especially the viscose fiber industry. Influenced by the fluctuation of feedstock prices, previous profit has already been offset; some manufacturers even had loss. Some of the experts consider that the inflection point may have appeared as the growing rate continues to decrease recently.

The problem which causes most concerns of the whole industry is the demand of next half year. Judge from the export situation, although the export value increased rapidly in the first half year, the realistic export volume grew slowly due to the surge of products prices. This indicates that the global economy is not recovering as well as we thought it would be. Rumors of adjusting the export rebate also give great impact upon the market mentality. For the next half year, these restricting factors still exist. The internal demand is comparatively stable. In the first half year, the retail sales increased 15% on year basis, but continuous high increasing rate of CPI is the most important factor. As a matter of fact, unit price increasing fast and sales volume growing slowly even decreasing will be the situation of demand in front of the industry. Coupled with the prudent monetary policy and other macro factors, the demand is hard to boost in the next half year.

Changes in the cotton price is still the focus of chemical fiber industry. Some of the chemical fiber products can take place of cotton products. Some feedstocks of those products are related to the cotton. As feedstocks of bulk textile, the fluctuation of cotton greatly affects the price tendency of chemical fiber products.

Overall, in the next half year, Chinese government will still focus on transferring surplus and controlling the prices. Therefore, the industrial policy is predicted to be tight. Meanwhile, the supply situation of electricity is not optimistic. The price fluctuation of chemical fiber material enhanced and the operating risks of the manufacturers increased. Whether the downstream demand can effectively increase is the key of the whole chemical fiber market’s tendency. However, with the release of the newly added capacities, surge of major products prices is predicted unlikely to happen; the very industry is expected to absorb the most increasing cost of the raw materials. According to the prediction of CCFIA, whole year’s chemical fiber output of 2011 will reach 33 million ton, increase 12% on year basis; import volume slightly decrease 5% and will be around 0.85 million ton; export volume continue to increase and will reach 2.6 million ton, up 35% on year basis. Industrial economic benefit will reduce. The total profit of the whole year is predicted to be 20-22 billion Yuan approximately and the operating quality of the industry might be downtrend.