Polyester production cut is of high probability. Market participants earlier held the view that polyester plants have to reduce the product inventory to around half a month before the Lunar New Year which starts from Jan 22, 2022, while the inventory is currently at an average of 1 month. It means that during the time of more than 2 months before the Lunar New Year, polyester plants have to reduce the inventory by half a month. In addition, given the expectation of seasonally weakening demand, polyester plants have to begin large production cuts in advance in Nov and continue till the Lunar New Year.
However, the fact is that several direct-spun polyester companies have already reduced operating rates to around 70-80%, and thus they could barely further cut production without shutting down the plants. However, if the plants were to shut, the workers will take the holiday in advance, while it will be too early for holiday. In addition, with a large number of workers returning home for holiday, the resumption of work may get delayed after the Lunar New Year holiday if the pandemic breaks out and then restart of plants may get postponed.
Then, there comes another option. Polyester companies may give considerations to balance inventory control and resumption of work, by postponing the shutdown of plants as far as possible while extending the holiday. Some medium and small sized companies have announced their annual maintenance plan, and according to the schedule, the maintenance would mostly start from mid-Dec or later. In that case, PFY production would not be slashed heavily in Nov at least. Polyester plant operating rate could be higher than expected in Nov, while the operating rate in Feb and even Mar 2023 would be lower than anticipated.
With polyester plants postponing the production cuts, the competition in the industry would intensify with losses worsening. PFY price could further dip in the short term.
