PFY Take History as a Mirror

There are only two weeks to welcome 2011 and less than 50 days for Chinese Lunar New Year. It is a crucial timing for chemical fiber market thus we compare current PFY market to the corresponding period for better market understanding.

1. Product inventory

PFY inventory in Nov 2009 mainly kept stable with small shivers at a low level, POY, FDY and DTY at 4-6, 5-8 and 12-15 days while PFY inventory in Nov 2010 kept rising and hit half-year new highs, POY, FDY and DTY at 10, 10 and 15 days respectively. In Dec 2009-Jan 2010, PFY inventory gained a big increase then declined by 8-10 days in early Jan when downstream plants started to stock up. During Lunar New Year holiday, sales vacuum dragged inventory level up sharply by 10-12 days. According to this, inventory after Lunar New Year will increase by 10-15 days from the level in Dec. So PFY inventory after 2011 Lunar New Year may reach as high as 20-35 days, 5 days higher that the highest point in 2010. Therefore, high inventory will cast great pressure on PFY plants and plants will focus on reducing inventory before the year end.

2. Price trend

PFY market experienced sharp ups and downs in Nov which gave a stage for speculators. As prices have declined to a basically reasonable level and the downtrend slowed down upon cost support. However, downstream plants seemed to enter dormancy in advance. Lack of capital flow, plants were inactive to stock up feedstock. PFY market confidence was still under recovery and trading sentiment remained tolerable despite some trial enquiries. According to a normal market operation, PFY prices in Jan will be down to a fairly low level to spur downstream purchasing enthusiasm. Impacted by weak demand, plus inventory pressure, PFY prices may keep shivering with a weak look in the short term.

3. Sales ratio
Sales Ratio in PFY Plants

1-Nov-09	110%
1-Dec-09	80%
1-Jan-10	100%
1-Feb-10	77%
1-Nov-10	80%
1-Dec-10	66%

From the above table, we can see clearly that sales ratios in 2010 are clearly lower than the corresponding period in 2009 with a rate of 20-30%. Moreover, the faster increasing speed of PFY inventory in 2010 also strengthened sales pressure to polyester plants.

4. Downstream market

Downstream plants suffered great impact during PFY’s rollercoaster ride. In addition, the slack season impact also restricted downstream demand. Downstream O/R is not likely to gain a small rebound as Nov 2009. The majority of textile plants maintained a low operating rate to keep workers but was largely considering an early holiday, not active to stock up. PFY rigid demand presented soft and the regular sharp plunge on downstream run rates may come in advance this year.

To sum up, PFY market was caught in a dilemma, lack of upward momentum but left with limited downward space. On one hand, warming capital market and polyester raw materials portrayed a good environment. Since PFY prices also declined to reasonable levels, rigid demand began to emerge thus though some PFY varieties kept decreasing, the range should be limited. On the other hand, high PFY inventory pushed PFY plants eager to sell goods and downstream plants hoped to stock up at lower prices. Some regular varieties already lingered around the cost line but some finer FDY with favorable profits still have decreasing risks. The stocking-up period usually comes around late Dec-early Jan but subject to impact from other factors.

In a word, PFY market will keep consolidating with a relatively weak performance. Downstream will purchase feedstock periodically with a moderate amount so sales ratio may take small jumps at times but a sales spree should wait for the stocking-up period.