The panic selling that started in late June once caused the polyester chain to give up all its cumulative gains during the year. Although the recent market has shown the possibility of a second bottom, considering the main move of positions and the poor forward supply and demand expectations, it seems that the market is not optimistic about the 09 contract. Even Contract 01 did not have high expectations. However, the market situation is changing rapidly. Will there be any surprises in the future for the three types of polyester chains?
PTA was able to hit a four-year high in early June, and the biggest driver was the rise in aromatics prices driven by refined oil products. The demand for oil products has shrunk recently, the aromatics price bubble at home and abroad has burst, the PX valuation has returned, and the international oil price has given back all the gains after the Russia-Ukraine conflict. PTA and EG have been greatly dragged down by the cost side. The current polyester industry chain is in a game of severe cost collapse and weak demand recovery. The reality is relatively weak, and the market believes that there may be limited room for improvement in forward supply and demand expectations.
Mainly reflected in the considerable pressure on the supply side. Although the current PTA supply side is still heavily overhauled and the operating rate is less than 70%, several large units of PTA and upstream PX are about to be put into production in the fourth quarter, and PTA supply is expected to increase. The tight spot situation of PX will be fundamentally alleviated, and the support for PTA’s cost side will be difficult to reach this year’s peak level.
In terms of ethylene glycol, due to continuous losses, starting in July, larger production capacity has been shut down or reduced, and the domestic operating rate has also dropped significantly, falling to the low of the year. However, most of the equipment that is inspected from July to August will be inspected for about a month. These equipment will be restarted one after another at the end of August, and by then the domestic operating rate may increase from the low point. Recently, it has been seen that Zhejiang Petrochemical’s 800,000-ton parking device has a restart plan, and the Hengli device also has a restart plan in August. In the future, there are also expectations for the commissioning of new devices such as Shenghong and Sanjiang, so supply pressure is not small. The same problem exists for short fiber. The current output is already at a high level in three years, and is showing a reverse trend from 2021. And judging from the later production plan, the supply increase is obviously expected.
Of course, the key to ending negative feedback in the industrial chain depends on the improvement in demand. The upstream has reduced prices and offered profits to the downstream to attract the willingness to hold stocks. Only by driving an improvement in terminal orders and an increase in the willingness to start operations of polyester factories can the upstream downward trend caused by the current negative feedback and cost collapse be reversed. However, life for the intermediate links in the polyester chain is indeed very difficult this year. The “crux” of the industry is mainly reflected in the dual pressures of high costs and low demand. High inventories, low profits, and low loads have become the norm in the industry this year, accelerating the process of industry reshuffle, and some companies have been forced to exit. At present, polyester and downstream textile printing and dyeing operations are at a low level, and negative feedback pressure from consumption still exists.
Compared with previous years, domestic textile and apparel consumption has been weak this year due to the impact of the epidemic. The sharp increase in raw materials has not led to market price increases and destocking. Instead, it has compressed market demand, and the price transmission in the industrial chain has not been smooth. Against the background of weak domestic demand, external demand is also difficult to support market demand, and the cumulative export delivery value of the textile industry continues to decline year-on-year. Downstream weaving production began to reduce in April, and this production reduction has continued until now and has not improved yet. Affected by the epidemic, the textile industry basically missed the peak season in the first half of the year. Even more terrible, the sharp rise and fall of listed raw materials have intensified the business risks of enterprises. High-priced polyester and yarn stocks have depreciated sharply in July.
At present, consumption is improving month-on-month and polyester load is increasing. However, due to the recent high temperature in the south, textile printing and dyeing operations are running at a low level. Therefore, although there is improvement in the downstream, it is still difficult to directly boost the consumption of raw materials. As the weather turns colder in late August, if consumption can pick up, the impact on the industrial chain may change from a drag to a neutral one. If it cooperates with the hype due to peak season demand factors, there may still be room for a rebound after the month changes. In particular, PTA processing fees are at a low level and are suspected of being underestimated from a valuation perspective. Ethylene glycol is not so optimistic. After all, the inventory pressure is significantly greater than that of PTA. Even if the contradiction between supply and demand is eased, it will only be of limited help in destocking.
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