Chinese polyester producers dangle discounts as inventory pressure mounts

China's major polyester producers are looking to clear out excess inventories by discounting more items and offering promotions, as downstream demand signals no immediate turnaround, sources said July 23.

Key producers such as Xin Feng Ming, TongKun and Hengyi slashed prices for products such as drawn textured yarn, or DTY; fully drawn yarn, or FDY; and partially oriented yarn, or POY, according to traders in China and Singapore.

Prices for POY were cut by around Yuan 200-350/mt July 23 while DTY and FDY prices were reduced by around Yuan 150-300/mt, sources said.

On July 22, POY closed at Yuan 7,965/mt, DTY at Yuan 9,410/mt while FDY stood at Yuan 8,460/mt, data shared by a Chinese trader showed.

A TongKun and Xin Feng Ming source confirmed the promotional activity to S&P Global Commodity Insights while there was no response from sources at Hengyi.

Market sources expect the sale to last until July 24.

"Yes, heard sale for two days, today and tomorrow. Price will be back to normal from 25 July," a trader in Singapore said.

The inventory of polyester filament has surged while the downstream raw material stockpiles remain extremely low, said the trader in China, referring to stocks held by traders, factories and end-users.

"However, because the price of polyester filament has always been high, the purchasing power is very poor," the trader added.

Domestic downstream appetite in China continues to stutter amid the struggling real estate market -- a key consumer of end-products made from DTY, POY and FDY, sources said.

Polyester plants in China have been steadily reducing operation rates each week following sluggish sales, which, in turn, pressures margins and profitability.

In the week to July 19, polyester plant operation rates(opens in a new tab) were at around 85.8%, down from around 86.2% a week earlier, a broker in China said. In July 2023, polyester operation rates were hovering at around 93%-94%, data from Commodity Insights showed.

Promotional sales like these, however, could potentially help stoke demand and lighten inventories, one of the sources said.

"Of course, the promotion price can guarantee downstream profits, which is conducive to maintaining the construction and the health of upstream and downstream," the source said.

Typhoon season piques buying appetite

Weakening downstream demand does not augur well for upstream PTA and PX markets, though the PTA market is finding some support from the onset of the typhoon season in Asia, market sources said.

Typhoon Gaemi, which is expected to lash eastern parts of China in the current week, is causing some disruptions to PTA supplies(opens in a new tab), especially at key shipping ports, sources said.

"PTA's spot goods are still quite tight, and the main port inventory is slowly increasing. In order to prevent typhoons, downstream bought some [PTA] in advance," the trader in China said.

PTA inventories in China have risen steadily but stocks at key shipping ports remain low, which could help prevent an immediate drop in prices, the trader added.

In the week to July 19, inventories in China were at around 2.26 million mt compared with 2.22 million mt the previous week, a China-based trader said. Stocks were at 2.18 million mt at the start of July.

"Some domestic [PTA] shipments from Dalian are cancelled," a second trader said.

However, market participants do not expect any major impact on the PTA market from the typhoon.

"At present, there are several possibilities for the direction of the typhoon, all of which are still uncertain," a third trader in China said.

Barring the weather-related issues, the near-term sentiment for PX and PTA looks bleak(opens in a new tab), as supplies grow and spot prices remain depressed, sources said.

Platts assessed Asian paraxylene down $1/mt on the day at $1,007.50/mt CFR Taiwan/China at the July 22 close while PTA CFR China was assessed down $1/mt at $758/mt, Commodity Insights data showed.