Last week, news of a polyester factory cutting production touched the hearts of textile people.
Several leading polyester manufacturers, including Xinfengming, Tongkun and Hengyi, are preparing to jointly reduce production by more than 30%, and the reduction is expected to exceed 4 million tons.
In the editor’s opinion, the production reduction of polyester manufacturers is mainly due to the contradiction between high inventory of polyester companies and weak demand from downstream weaving companies, but there are also deeper reasons.
If you get fat, the upper reaches will suffer, and the lower reaches will suffer.
Profits at the back end of the industrial chain are being squeezed
The sharp increase in PTA prices in the first half of the year was a surreal increase that completely ignored the affordability of the downstream polyester industry. The domestic textile industry encountered unprecedented difficulties in the second quarter, with extremely low demand and soaring costs. However, PTA manufacturers cannot accept all the infamy because the processing fee of the PTA industry was reduced to less than -100 yuan per ton in the second quarter. The rare negative processing fee meant that PTA once fell into industry-wide losses.
First, the geopolitical crisis in Ukraine has driven up crude oil prices, making life difficult for all petrochemical industries. However, the raw materials of PTA – naphtha and PX are relatively in a better situation.
Secondly, the United States imports large amounts of aromatic hydrocarbons, such as naphtha, PX, toluene, etc., for use in gasoline blending. The price of gasoline in the United States this year exceeded the historical extreme of $5 per gallon. At the same time, the hot climate and strong demand have seriously impacted the normal balance of the aromatics market due to the demand for gasoline blending this year. A large amount of PX and toluene are exported to North America, resulting in severe restrictions on the production of PTA and styrene, and a sharp rise in costs.
Although the operating rate of its third downstream polyester is lower than in previous years due to the decline in terminal factory orders, the magnitude is relatively small. The negative feedback of weak terminal demand has not further affected the upstream of PTA, but the pressure of supply and demand imbalance has been borne by polyester factories. The supply of polyester is high and the demand is declining. The unmatched upstream and downstream production operations have led to a surge in pressure on polyester raw materials. In addition, polyester production and sales have been weak, with average production and sales less than 50%. Polyester product inventories have increased rapidly.
It is understood that the downstream polyester industry has encountered the most serious inventory backlog in recent years. The objective reason is the decline in demand caused by the impact of the domestic epidemic, but fundamentally it is the production capacity process of polyester itself, and the average operating rate of the industry is less than 50%. Under the imbalance of supply and demand, the inventory cycle of FDY, DTY and other varieties has exceeded 30%, and the POY inventory cycle is close to 30 days, both far exceeding the same period in history. Likewise, price increases are more limited closer to the terminal, and profits at the back end of the industrial chain are being squeezed. Polyester filament, staple fiber and weaving have all experienced continuous losses in the past half year.
The growth rate of polyester production capacity this year has exceeded the growth of weaving demand
But another important reason cannot be ignored. In recent years, the polyester market has entered a period of rapid development. As the market gradually becomes saturated, the growth rate of polyester production capacity has gradually exceeded the growth of the demand for polyester filament in the weaving market. Throughout the first half of the year, the domestic polyester industry’s new production capacity was 3.2 million tons/year, an increase of 1.3 million tons/year compared with the same period last year, and a year-on-year increase of nearly 60%.
House leaks coincided with continuous rain. With polyester soaring and plummeting, the resurgence of the epidemic, coupled with the slowdown in domestic economic growth, caused the downstream weaving market’s climate cycle to begin to shift into depression.
After May, due to the impact of high-priced raw materials, some weaving companies with low profits, especially some warp knitting companies, began to suspend production and work on a large scale. The operating rate of looms dropped significantly, and the demand for polyester filaments further weakened, and the demand for polyester filaments weakened further. The factory’s subsequent high inventory paved the way for this.
When will the current situation of high inventory change?
However, in the past half month, textile raw materials have fallen across the board, but textile companies have not bought into it. Not only have there been no large-scale and centralized replenishment of raw materials, but pessimism has continued to spread, and it is not uncommon for some small textile companies to reduce or suspend production.
According to feedback from textile factories in Jiangsu, Zhejiang and other places, as of mid-to-late June, the order volume of printing and dyeing companies in Suzhou, Changzhou, Shaoxing and other places was still relatively low, and the operating rate was generally 60-70%. This shows that the end users of clothing and fabrics Ordering is still not ideal.
A medium-sized weaving factory in Shaoxing, Zhejiang Province reported that the company’s comprehensive operation rate of rapier and air-jet looms is currently around 60%, and the consumption of cotton yarn is only 35-40% of the peak period in the previous two years. On the one hand, all cotton gray fabrics There are few orders and there are more short orders and small orders; on the other hand, the impact of the United States and the European Union’s escalation of the Xinjiang cotton ban is still fermenting. The industry must not only observe and understand how the U.S. Customs and Border Protection traces its origins and enforces the standards, but also thinks about it. How to provide evidence standards to foreign buyers.
Under the low operating rate, the polyester purchasing end will remain in a state of contraction. However, in the short term, as polyester production cuts intensify, the contradiction between supply and demand may be alleviated, and absolute prices will fluctuate with costs. For downstream weaving companies, what they are most concerned about is not the production and sales of polyester factories, but the price of polyester filament, which is related to the cost of their cloth. The editor predicts that in order to reduce inventory, polyester manufacturers will��As long as there are no major fluctuations in the current situation, it is difficult for the price of polyester filament to fall significantly in the recent period, and it is likely to be in a stable situation. Weaving companies can also purchase raw materials carefully according to their own needs.
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