Chinese polyester producers consider production cuts to boost demand

Chinese polyester producers are opting for production cuts to boost persistently weak domestic demand as the peak summer textile season nears, although market sources indicated that no immediate effect on upstream PX and PTA prices has been observed, trade sources told Platts.

China's ongoing struggle with a sluggish economy continues to exert downward pressure on domestic consumption, particularly for polyester fabrics.

Some large producers in China, such as Xin Feng Meng, Hengyi, and Tongkun, were heard to have cut production of polyester staple fibers by around 10% through April.

A source at Xin Feng Meng confirmed the development but sources at Hengyi and Tongkun did not respond.

"Major polyester producers plan to reduce production by 10% for a period of one month," a trader in China said.

Upstream PX prices are experiencing minimal effects from production cuts, as crude oil prices strengthen amid geopolitical volatility.

In early Asia trade April 1, Platts pegged Asian paraxylene up $9.34/mt day on day at $856.67/mt CFR Taiwan/China

Apart from the major producers, some smaller producers are also opting for production cuts, although the actual impact is likely to be significantly smaller, a second Chinese trader said.

"Both short fibers and long fibers plan to reduce production in April. There was a lot of news yesterday, but I don't think these will actually be implemented. It's just that the long fibers will be converted into slices," the second trader said referring to slices as the previous layer in filament production.

The trader further explained that producers might consider some changes in production with a drop in production as a last resort.

Summer season

A third Chinese trader stated that the announcement of production cuts could be a way to prompt retailers to seek more raw material.

"I guess it is a kind of strategy to increase sales of polyester," the third trader added.

The second quarter of the year welcomes the start of the summer season with buying interest for polyester fabrics expected to move higher.

"Industries release this news [of run cuts] to downstream [buyers], which may force them to purchase goods since April normally is a hot season for demand," the third Chinese trader explained.

Inventory worry

The entire value chain, including PTA and PX producers, is banking on improved downstream domestic demand as margins continue to crumble.

From supply cuts in Asia since January and plant turnarounds kicking in from March onwards, PTA and PX producers have tried everything to sustain margins yet they receive no support from the demand side.

While inventories have not yet reached alarming levels, sources indicate that there are emerging concerns for producers.

In the week to March 28, stocks for partially oriented yarn were around 27 days, fully drawn yarn around 30 days and drawn textured yarn around 31 days, the trader added. Inventory levels nearing 40 days of supply are considered concerning for producers.

Several traders in Asia stated that the weeks ahead could provide more clarity depending on how the summer season demand shapes up and whether polyester producers further deepened cuts to loosen inventories.

"At present, there is no way to give an accurate answer, it still depends on the actual needs in the future," the second trader in China said.