Polyester: production resumption accelerates but end-user orders still lacked

Polyester companies and downstream plants have successively resumed operation after the Spring Festival holiday but the resumption was slower than earlier anticipation, which was mainly because of the following reasons: firstly, many immigrant workers went hometown for the Spring Festival this year with optimized pandemic prevention and control policies, and many have not returned to their position temporarily. Secondly, the operating rate of chemical fiber plants was not high in 2022 due to poor profit and many cut wages of workers. Some migrant workers are likely to switch jobs after come back. Finally, with falling crude oil price after holiday and unclear order direction, downstream factories are not rush to ramp up operating rate.

After the Lantern Festival holiday (Feb 5), the operating rate of polyester market and downstream sector will speed up to increase, while the improvement will depend on the actual sales. Polyester polymerization rate was at above 70% on Feb 6 and may continue increasing to around 75% by Feb 10.  According to the survey made by CCFGroup, current orders lack clear direction and still needs time to observe. Current orders on downstream market can be descried as mild, worse than expectations temporarily.

Clothing wholesale markets opened one after another all over the country from Feb 1. Due to the two Lunar February this year and the long time in spring, some store merchants began to purchase spring apparels at the beginning of the year, preparing to go on sale after February. Some media have reported that some merchants are relatively busy after the opening of the market, and their daily business income has increased substantially. However, based on the survey made by CCFGroup, the overall resumption rate of wholesale markets around the country was low, and the flow of people was not very large. Merchants who open the market and are busy with business are not common phenomena. The final consumption still needs to wait for the spring clothes to appear on the market in Feb-Mar, depending on the actual buying strength of consumers.

Printing and dyeing plants successively restarted production from Feb 2 but the recovery is slow too due to the labor issue. Due to the increase in the prices of water, electricity, steam, coal water slurry, dyeing and chemical auxiliaries, labor, etc., the production cost of the printing and dyeing industry generally rose in 2022, resulting in greater operating pressure. According to report from Yingfeng, the net profit losses are expected to be 4000-5000yuan/mt in 2022. To mitigate losses, the printing and dyeing plants in Shaoxing raised the dyeing fee by 1500yuan/mt after the Spring Festival holiday. However, many customers reflect that the actual dyeing fee does not increase in most factories. Dyeing plants saw good business after holiday but most were orders placed before holiday. The durability of orders should be concerned if the dyeing fee sustains firm.

Some downstream plants have restarted production from Jan 29 but the resumption was slow. The operating rate of fabric mills was at 22% by Feb 2, which was at 32% and 39% respectively at the same time of 2022 and 2021. Many fabric mills have not started offtaking orders after holiday and the orders are mainly sporadic and small one. Fabric mills saw good orders in 2021 and many started receiving orders from the fifth day of the first lunar month. The sequent orders need further observation.

A survey of a large garment export enterprise in Zhejiang Province reported that export orders in spring this year were significantly lower than those in the same period of last year. In addition, a fabric manufacturer in South China, which perennially accepted orders from Nike and Adidas, reflected that spring orders of overseas brands also obviously dropped this year. In expectation of soft export orders in the first half of 2023, eyes are highly suggested to the domestic demand.

After the Spring Festival holiday, the performance of China's export container marine market is weak, the recovery of transport demand is relatively slow. The freight rates of most ocean routes move down with unsatisfactory supply and demand. On Feb 3, the Shanghai Shipping Exchange released the Shanghai export container comprehensive freight index of 1006.89 points, down 2.2% from the previous period. The inventory-to-sales ratio of wholesalers of clothing and clothing fabrics in the United States was high and still rising. The latest reported real inventory of overseas brands was also high, such as Nike's inventory of $9.326 billion in November 2022, up 43.3% from a year earlier, and Adidas's inventory of 5.972 billion euros in September 2022, up 63% from a year earlier.