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Polyester market: which product appropriate for bottom-fishing now?

2020-04-07 09:08:40 CCFGroup

U.S. President Donald Trump expected Russia and Saudi Arabia to settle their feud over oil production soon. International oil price showed signals to rebound affected by this news, and further pushed up price of chemical products. As for polyester feedstock, price of PTA futures closed at 3,422yuan/mt, up 120yuan/mt, and that of MEG futures ended at 3,358yuan/mt, up 264yuan/mt. In view of spot market, price of PTA increased by 55yuan/mt to 3,150yuan/mt, and that of MEG rose by 140yuan/mt to 3,188yuan/mt, equivalent to the polyester cost up by 94yuan/mt to 3,761yuan/mt.

Surging oil and polyester feedstock price stimulated sales of polyester products.

Transactions of PSF hiked yesterday afternoon driven by rallying oil and feedstock price, with sales ratio mainly around 200-300%, lower around 100% and higher at 500-600%. Most buyers purchased to cover the pressing demand, cautious in having bottom-fishing. Sales of downstream polyester yarn remained slack, failing to show signals to improve. Stocks of finished goods in PSF plants were normal, at 10-11 days. Eyes are suggested to whether price of feedstock market will stabilize.

Sales of PFY started rising yesterday afternoon, and the improvement was not big before P.M.3:00, with sales ratio averaged at around 130%. However, sales soared during P.M.3:00-5:00, with sales ratio averaged at around 300% by P.M.4:45. The sales ratios of major plants were at 180%, 200%, 500%, 300%, 1,000%, 200%, 280%, 100%, 200%, 200%, 200%, 150%, 400%, 50%, 400%, 785%, 600%, 200%, 200%, 300%, 100%. Trading price of 75D, 150D and 300D was mainly below 4,500yuan/mt, slanting low, even lower at 4,100-4,250yuan/mt.

Local trading of PET bottle chip increased yesterday, with trading price mainly at 5,000-5,100yuan/mt in mainstream enterprises. Trading volume even exceeded 10,000mt, and some companies suspended selling in the afternoon. Traders also saw improving sales, mainly under 5,050-5,100yuan/mt. 

Transactions of PET fiber chip rose, with trading price for SD ones at around 4,200-4,250yuan/mt, and that of bright ones at around 4,300-4,400yuan/mt, mainly at 4,350yuan/mt for many orders in Zhejiang and Jiangsu.

Price of polyester industry chain was low now, and many market players intended to have bargain-hunting. Therefore, the change on the macro market exerted huge effect on the whole industry. Is it time for buying-the-dip and which product has smaller risk are issues market players concerned.

Firstly, when to have bottom fishing?
The stimulus from the news aspect was faster than that from the fundamental. Downstream players are expected to show strong intention to have bargain hunting when price of polyester industry chain hit historic low. The propel from news sector would directly drive players to replenish, rather than wait for the improvement of the whole industry chain. However, as for the time for buying-the-dip, there are 2 stimulus now. 1. The negotiation of oil producers, and oil price is supposed to have support if production is cut again. 2. The spread of COVID-19 pandemic worldwide turns to be controlled well. Whether the bottom-fishing appeared yesterday was correct or not needed to see the accuracy of the expression of U.S. President Donald Trump and whether the trading price of different products was really low. Based on current status, price may not low, the pandemic has not eased and the Russia and Saudi Arabia do not take action. The whole polyester industrial chain has not improved effectively. What market players worried before has happened, and recovery is only a matter of time.

Secondly, is the price level safe?
Is there room for being profitable under current cost should be taken into primary account. Some suppliers have been under serious losses now. Another factor requiring concern is whether the cost has shrinking space. Taking PFY as an example, it was safe for price of 150D below 4,500yuan/mt as the cost price was 4,900yuan/mt based on current polyester melting cost. If Brent oil price declines to $20/bbl, the cost price for POY150D is at 4,500yuan/mt.

Finally, which product is appropriate for bottom-fishing now?
In view of feedstock market, the naphtha spread has been narrowed to negative territory now, PX-naphtha spread was at $275/mt, and PTA-PX spread was near 700yuan/mt. Naphtha-based-MEG was still profitable, while ethylene-based MEG, coal-to MEG and methanol-based MEG all suffered losses. The risk of PX and PTA sector was relatively smaller.

As for the cash flow of polyester sector, PFY enterprises have witnessed apparent losses, especially POY and FDY, while cash flow of PSF, PET fiber chip and PET bottle chip was tolerable. Trading price of PFY under large orders was even lower than that of PET fiber chip. Therefore, it is relatively safe and cost-effective to buy PFY now.

Cash flow of polyester products (Unit: yuan/mt)
Date PET fiber chip PET bottle chip POY150/48 FDY150/96 DTY150/48 PSF
2020-4-2 113.77 588.77 -276.23 -351.23 455 428.77
2020-4-1 257.7 732.7 -157.3 -242.3 630 612.7
2020-3-31 260.39 760.39 -169.61 -239.61 665 660.39