Do not too pessimistic about terminal demand

Sales of PFY have remained sluggish since the Spring Festival holiday, with sales ratio mainly at 20-30%. Stocks of PFY hit historic high now. Downstream plants resumed operation later than anticipated. Most fabric mills witnessed subdued business and held pessimistic views toward the demand. The demand outlook is not such pessimistic, according to our analysis.  

In perspective of the industry, 1. PFY prices mainly followed the raw materials after Spring Festival in previous years when demand had not recovered. Downstream buyers would not purchase no matter price of PFY declined or increased as most had prepared PFY before. As a result, sales of PFY would be bad for a period after Spring Festival holiday, particularly in this year when raw materials market was more volatile. However, downstream buyers may need to replenish in end-Feb or early-Mar after PFY prepared before being consumed, according to CCFGroup’s survey and then sales of PFY are expected to improve.

2. The resumption of works this year was only apparently later than that in 2021 when speculative demand and downstream demand rose quickly after Spring Festival holiday as many migrant workers decided to stay-put for the Spring Festival and the market was full of expectation toward the recovery of demand under the control of pandemic and the rising oil price.  The operating rate recovery this year was basically flat or slightly lower compared with years before the pandemic. The main impact is from  the spread of pandemic in Suzhou and the worry of high oil price. 

3. Although most fabric mills did not eye good business after Spring Festival holiday this year, the business of the fabric traders was tolerable, indicating a stable terminal demand. When feedstock price declines and stabilizes, the spread of pandemic in Suzhou is controlled well, fabric mills are likely to embrace better performance.

For the impact from economic policies, we still hold neutral mindset. The domestic demand is expected to be buoyant compared with 2021 as China government will be engaged in developing economy stably and stimulating domestic demand. However, the support to textiles and apparels consumption is expected to be very limited. From the aspect of export demand, the consumption is supposed to see descending growth rate from high level amid high inflation.  The recovery of textiles and apparels exports in Southeast Asia may again squeeze the share of China’s textile and apparel exports.