The China polyester mystery continues in a world turned ...

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By John Richardson

China's polyester market is facing intriguing developments that have significant repercussions for the entire industry. Data from ICIS continues to reflect robust local growth in the demand for paraxylene (PX) and monoethylene glycols (MEG), even as the downstream fundamentals appear shaky. The term "global significance" is no exaggeration, as China holds a commanding position throughout the polyester value chain, impacting exports and imports alike.

From January to July, apparent demand for PX in China reportedly surged by 24% year-on-year, driven by an astounding 63% increase in local production, while net imports saw a 7% decline.

It's crucial to note that removing the 723,709 tonnes of Brunei's imports—originating from Hengyi Petrochemical's PX plant—illustrates that net imports not linked to this source were actually down by 14%. Regardless, imports in this instance contribute to local production metrics, ensuring that the overarching demand still reflects a 24% increase.

In an alternate scenario where we assume inaccuracies in our monthly production estimates and adhere to our forecasted 13% annual production increase in our ICIS Supply & Demand Database, apparent demand for the period would still demonstrate a 9% increase.

Both the 24% and 9% demand growth figures present a stark contrast to our overall expectation of a -1% real demand growth for the year, marking the first decline in China's polyester sector since a 3% dip in the previous decade.

Similarly, the MEG segment illustrates a comparable trend, seeing net imports rise by 13% during the same January to July period. While our monthly production estimates for MEG are not available, we anticipate a 5% rise in annual production.

Applying the same calculation method as above, the conclusion indicates a 9% year-on-year rise in apparent demand. Yet, our prediction for real demand suggests a 4% contraction this year, establishing a negative trend that harkens back to a significant drop in demand recorded years ago.

Diving deeper into the polyester derivatives, China stands as the largest global buyer of PX and MEG while simultaneously dominating the exports of polyester fibers and polyethylene terephthalate (PET) films. However, when combining data on PX and MEG product exports for January to July, we observe a concerning decline of 23%.

Examining PTA offers limited clarity into these dynamics. PX is a critical component in producing PTA, which is subsequently utilized with MEG to create various polyester products. This year's January to July data illustrates a shift from a marginal net import status to a small net export position.

The Apparel Sector Faces Challenges Amid Pandemic Disruptions

Returning to the polyester fiber narrative, the textile industry globally has witnessed a sharp decline due to the pandemic. As reported by just-style.com with reference to Chinese government statistics, major enterprises within China's garment sector experienced a 16.4% drop in earnings and a 23% decline in profits during the first half of the year. Notably, apparel exports to the U.S. faced unprecedented reductions despite a 17% fall in unit prices to $1.88.

This decline is mirrored in China's polyester fiber net exports, which fell by 20% between January and July. This trend not only impacts the domestic clothing industry but also reflects the struggles of significant polyester fiber suppliers to manufacturing hubs in Bangladesh, Pakistan, India, and Vietnam. Although some of these nations have shown signs of recovery in clothing exports, they struggle to compensate for the substantial losses during earlier months.

Amid this uncertainty, it is noteworthy that the same article from just-style.com indicates that China's combined textile and apparel exports rose by 3.2% in value during the first half of the year, largely due to an uptick in shipments of textiles earmarked for personal protective equipment.

Nonetheless, polyester fiber, traditionally used for garments and household items, is witnessing shifts in composition. The demand for polyester blends, including those used in face masks, suggests a transformative change, although local demand for polyester fibers remains notably weak, as consistently highlighted by our ICIS pricing editors.

Potentially encouraging trends may exist amidst the apparent weaknesses in polyester fiber, film, and PET resin exports. The pandemic has catalyzed a significant increase in demand for single-use packaging products, such as plastic films and PET bottles.

However, our analysis indicates that about 81% of China's polyester polymer demand will stem from fiber consumption, suggesting that the demand dynamics for PX and MEG remain closely tethered to fiber production.

Given the conflicting signals, it raises the question: to what extent are production levels outpacing demand?

• From a perspective of a potential 24% surge in apparent PX demand versus our forecast of -1% real demand, this results in a projected overstocking of approximately 3.5 million tonnes. Alternatively, considering the lower 9% growth estimate, overstocking could be about 1.2 million tonnes.
• In terms of MEG, the overstocking estimate stands at 1.3 million tonnes, calculated against a 9% growth rate and an anticipated 4% decline in real demand.

The Uncertain Future of Polyester in a Post-Pandemic World

As we navigate this intricate landscape, it is crucial to recognize that the pandemic has irrevocably altered end-use demands across petrochemical markets in ways that require further examination. Consequently, it's possible to imagine scenarios where demand for polyester and its derivatives does not align with previous trends. However, this assumption appears unlikely.

More feasible is the notion of overstocking, indicating a strategic decision by importers and local producers, who have built inventories in anticipation of a rebound in global clothing demand towards the latter part of the year. Early indicators suggest a cautious recovery; whether this strategy proves effective remains to be seen.

However, what is abundantly clear is the essentiality of ICIS data and analytics in navigating the complexities of the PX, MEG, and wider petrochemicals markets during these unpredictable times. From my extensive experience in the industry, never have conditions appeared as convoluted or as uncertain as they are now. Hence, maintaining an independent and informed perspective becomes paramount for business success.

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