POLYESTER FILAMENT (DOWNSTREAM)

Although the Chinese government increased interest rates by 25 basis points, this has had a limited impact on stock and futures stock market.  Most are of the opinion that price increase of polyester in the short term future is inevitable, in face of increasing raw material costs, substitution of cotton and increased capacity of fibre sector as consumer spending which is allowing the demand to remain strong.  This has been manifested in increase of POY, DTY filament yarn prices in the domestic markets as producers remain resolute to maintain their margins.  The domestic demand in Taiwan and India remained good.  With the Taiwanese NT$ having appreciated 7% during the last year, there is an adverse pressure on exports, but the domestic supply chain is balanced enough at a time when seasonal demand picks up to absorb this diversion of product from exports.  Similarly Indian polyester sector is expected to grow by 15% and there is an increased demand from non-apparel sectors such as home furnishings and technical textiles.  With operating rates in the low 90%, demand seems quite reasonable. 

In the North American sectors plant utilization rates for BCF producers was 100% as retail off take remained strong.  Polyester BCF shipments  in the US increased by 36% over 2009, which is indicative of market share gain of polyester over PP, Nylon staple and filament.  Also there is a downstream demand in the auto sector, and with importers switching to local suppliers the apparel sector demand has also picked up from the Central American and Mexico region.  Further demand for high tenacity yarns also remains quite healthy.  The demand for filament in the West European economies also remains stable, with an uptick in demand for the apparel and auto sector.  The general notion of cotton price hike, along with increase of polyester remains a concern for both textile importers and exporter, which set the tone of discussion at the recent Heimtextile Exhibition at Frankfurt.  

MEG (UPSTREAM)

The ACP for March came out to $1350 for Shell (up $120/ton), $1380 for MEGlobal (up $160) and $1400 from SABIC (up $ 170).  Due to moderate downstream demand such a price hike is difficult to absorb, as demand for antifreeze is low.  In Europe, two opposing factors are working.  Shutdowns at Ineos, turnaround at Clariant and a shutdown at a small facility at BASF has reduced output, thus restricting supply, at the same time the market demand has withered due to low PET manufacturing output, due to shortage of PTA, and demand further impacted as antifreeze consumption, due to seasonality issue, is impaired.  However, this slackness can be followed by market tightness as numerous turnarounds are expected in the Saudi Arabian market, with the longer outages coming from April to June.  Also EO remains very balanced, with no excess of this feedstock in the market.  So from a supply chain perspective, things could tighten in the impending future. 

Capacity utilization in India has increased to 90% for PSF and PFY, which is an indication that prices are being translated downwards.  Further the demand for polyester in non-apparel sector, home furnishing and technical textiles is increasing and it is expected that the polyester sector would grow 10-15% when the GDP is expected to grow by 8.8% for the current fiscal year.  Similarly in the North East Asian economies a greater % of spot is being factored into the contract pricing, which gives an indication of a lively demand.  The operating rates in China are similar to those as the pre-lunar year time as there is reasonable downstream demand.  There is a general notion that MEG may remain short, given that polyester is set to grow at a pace higher than MEG expansions.  Similarly, with 42% of consumption of Chinese monoethylene glycol (MEG), being exported out of Saudi Arabia, which is expecting 9 shutdowns out of their 11 facilities, price hike in the domestic Chinese market seems inevitable in Q2.