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Weak demand and accumulating stocks put further pressure on chinese man-made fibre prices

Weak demand and accumulating stocks put further pressure on chinese man-made fibre prices Source: www.chinatexnet.com
Date: 21-03-2013
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Reports from 168tex confirmed last week that prices throughout the polyester supply chain in eastern China continued to ease,  in face of soft feedstock values, sluggish demand and accumulating stocks.
 
Stocks of purified terephthalic acid (PTA) in eastern China were estimated last week to be sufficient for around 10 days of sales (roughly 1.5 million tonnes). 

Manufacturers have recently cut operating rates, which had begun to recover following the Spring Festival, to about 60% of capacity on average. However, further curtailments cannot be ruled out if demand does not improve and profit margins remain under pressure. The perceived damaging overcapacity in the PTA sector has attracted the attention of government officials, with the Business Council in Beijing proposing to bring manufacturers together in a concerted effort to cut operating rates further and scrap outdated production lines.
 
Nearly 70% of the mono ethylene glycol (MEG) consumed in China is imported and traders are typically better able to adjust quotations and stocks than local manufacturers of PTA. Sellers of MEG have typically been pushing hard to liquidate stocks held at port and were again flexible in price negotiations.
 
Falls in prices for polyester staple fibre were especially sharp last week. Offers of 1.4 denier, 38mm, reported by 168tex declined by over 5.0%, to 10,600 yuan per tonne (US$1.71 per kilo), a level last witnessed back in December.

Stocks of polyester staple are thought to be particularly high at present, owing to the paucity of offtake since the Spring Festival.
 
Until recently, local manufacturers of polyester filament yarn had been able to manage stock levels better than counterparts in the staple fibre sector. Many enjoyed good sales during December and January and then cut production sharply ahead of the holidays. However, upon starting up production lines after the break, manufacturers have generally encountered lacklustre trading conditions and stocks have begun to accumulate. Pressure is building to discount offers in an attempt to liquidate those inventories and 168tex reported further dips in prices for a wide range of constructions.
 
Similar market dynamics also influenced a drop in polyamide 6 filament yarn prices in Shengze. We have started to provide price indications for FDY 70 denier 24f in the table above.
 
Despite the ongoing anti-dumping investigations into viscose staple fibre raw materials, the general malaise currently prevailing in the local textile industry, along with talk of a potential release of additional cotton import quota (allowing mills to access that fibre at significantly cheaper levels) were sufficient to influence a weakening in quotations for 1.5 denier, 38mm. Producers reported a sustained dearth of buying interest, despite the lowering of prices.
 
WTiN Outlook: polyesterMarch and April typically represent a seasonally active period of sales of polyester staple fibre and filament yarn in China.

However, as was the case last year, that upturn in trading has been slow to materialise in the aftermath of the Spring Festival holiday, with downstream manufactures still working through raw material stocks accumulated before the break. As producers have increased their throughput during the past few weeks, bringing idled capacity back onstream, the sluggish business climate has resulted in a swift build-up of unsold stocks. The longer this situation persists, the greater the unease evident within the industry, particularly as this period of slow trading has coincided with weakness in feedstock values.
 
However, the pace of downstream textile business does seem to be gathering some momentum (see comments about fabric demand in Shengze in the “Yarn and fabric” section) and we still foresee a steadying in prices in the weeks ahead. In the longer term, the industry still has more chronic, structural issues to address, specifically the surplus capacity that has developed in polyester staple fibre and filament yarn production, following significant investment during the past couple of years.
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