Demand for polyester staple is at strong levels as cotton substitution is taking place. Despite the strong overall market, customers are cautious and are buying in small quantities. The two opposing factors that may be leading to their hesitation is the slackness in demand as the lunar year approaches and with the passing of Christmas, but the diametrically opposing factor is the price of cotton is much higher than that of polyester staple. Cotton prices are approximately 13000 RMB higher than polyester pricing in the Chinese market and spun yarn (PC) Euro 2.55 – 3.55 per kg, depending on the count as compared to filament & polyester spun yarn, which is in the range of Euro 1.45-1.55/kg. So while one force may lead to demand slackness, given that not all sectors are doing equally well, the price disparity may work in a way so that the price differential between cotton and polyester narrows to a practical level. However, cotton prices don’t appear to point downwards during Q1 of 2011, as a shortage in world output is expected to remain till the middle of 2011; before the yearend demand changes other market dynamics which may favor the retention of market prices prevalent at that time. So with our discussion on raw materials, the cost push is apparent in reducing competitiveness of Asian produced goods. NA domestic suppliers are reporting that traditional importers are coming to them for supply, as they are not getting competitively priced products from overseas. So this would again support the internal domestic supply chain dynamics, causing a demand pull. Not all sectors are performing equally well. Demand for weavers and knitters is very good, as the main cotton substitution is occurring here. Fiberfill business is reasonable due to the import substitution impact, and nonwovens are slower due to seasonal factors. Similarly in the EU region hygiene nonwovens and wipes demand is on a seasonal decline, while the demand from automotive sector remains strong supported by good export. Fiberfill consumption has increased for the apparel and medical sector, but home furnishing demand remains low.
What is gathered from the above discussion is that demand is variable. Raw materials can only be priced at a level, what consumers are willing to pay for them, through the value chain. Is the demand robust enough to sustain such robust raw prices? Definitely this may be the case in the short term. 2011 Q1 will be interesting to watch.
Conclusion: Raw material disparity between cotton and polyester, may ensure the continuation of polyester demand, thus ensuring pressure on raw materials costs and thus polyester.
