Polyester Staple Fiber Price Hike Cannot Conceal the Surplus      

By Lu Xiangping, Sinopec Chemical Sales Company North China Branch  
In the first eight months of 2010, polyester staple fiber (PSF) prices were relatively stable. But in September, they soared by nearly 35% month on month, leading other polyester products. Such a sharp price hike for PSF has rarely been seen for many years.
   In China, about 80% of PSF is used for spinning. During 2001 to 2007, China's PSF capacity grew faster than the capacity for spinning (downstream) and making polyester (upstream). Therefore, since 2008, the utilization rate of China's PSF capacity has been maintained at only 65% to 75% to achieve a supply-demand balance and certain profits. In the first eight months of 2010, PSF prices also went up, but their growth was far slower than the prices of its upstream and downstream products, and the utilization rate of PSF capacity during this period dipped below 60%. Due to such low utilization, the fragile supply-demand balance was broken. This factor along with the sharp price hikes of related products led to the soaring PSF prices in September.
   Since the early 21st century, because China's PSF production technology has grown very mature and the construction cost of a PSF production factory has declined sharply, a large number of private enterprises have entered the industry, making China's PSF capacity grow rapidly and turning China into the world's largest PSF producer. Currently, China has about 150 PSF producers (including small-sized chemical fiber-based and recycled chip spinning (RCS)-based PSF producers). According to data of China Chemical Fibers Association, as of the end of 2009, China's PSF capacity reached 10.93 million t/a, accounting for 81.57% of Asia's total and 65.25% of the global total. Of the total, 35 non-RCS PSF producers have a combined capacity of 5.26 million t/a, accounting for about 48% of China's total PSF capacity. The average capacity of their PSF units is about 150 000 t/a. Although the capacity of China's PSF industry has not increased much in recent years, its rapid growth in the past had already built up a huge capacity, so this industry still faces serious overcapacity.
   The global and Asian PSF capacity was in surplus in the past years and will remain so in the next few years. Due to overcapacity, serious product homogeneity and competition from RCS-based PSF products, the PSF market can hardly be expected to rebound.
   PSF is a major raw material for the spinning industry, which accounts for about 80% of the total annual demand for PSF. China's spinning industry started capacity expansion earlier than the PSF industry. During 2004 to 2005, the spinning industry was in serious overcapacity and was faced with very fierce market competition. However, its dependence on PSF has been very low.
   In the past two years, with the development of the spinning industry and the adjustment of its product portfolio, the demand for PSF in China has gone up. In 2008, due to the global financial crisis, China's consumption of PSF was 6.654 million tons. In the end of 2009, it bottomed out, but then rose slightly. Since early 2010, due to the recovery of the international economy and the pull of many positive factors, the business performance of China's spinning enterprises has improved significantly. Profits have soared, and operating rates have increased substantially, so the demand for PSF has increased rapidly. In addition, due to a reduction in the world's cotton production and speculation in futures markets, the cotton supply has become extremely tight, making the price difference of cotton and PSF once reach more than RMB10 000 /t. Driven by the skyrocketing cotton prices, the demand for PSF as an alternative of cotton has steadily increased. The industry players estimated that the demand for PSF in China will reach 6.98 million tons in 2010. If the tight supply of cotton lasts to September 2011, China's apparent consumption of PSF will reach 7.68 million tons in 2011.
   But even as forecast in the Table, China's apparent consumption of PSF in 2011 will be still less than 80% of China's total PSF capacity.
   Factors that can affect PSF prices include the supply-demand situation, the supply of raw materials, the conditions of alternatives, and industrial policies. Moreover, the depreciation of major currencies in Europe and America, the slowness of global economic recovery, the expected appreciation of the RMB, the worry for interest rate hikes as well as the low-price competition from South Asian countries add to the uncertainty of exporting Chinese textiles, thus also resulting in the fluctuation of spinning enterprises' demand for PSF, so the PSF overcapacity is expected to worsen.
   Currently, due to high international oil prices, the prices of purified terephthalic acid (PTA) and monoethylene glycol (MEG) - raw materials for manufacturing polyester, also stay high, and the profit margin of PSF makers is engulfed by raw material costs.
   In addition to overcapacity, China's PSF companies now also face other serious problems in their own operations.

China's production and consumption of polyester staple fiber in recent years     (thousand tons)
Year    2008    2009    2010E    2011 E
Capacity (million t/a)
    10.93    10.93    10.93    11.13
Capacity utilization (%)
    63.8%     64.96%     66.42%     71.875%
Output
    6 968    7 100    7 260    7 986
Import
    142     149     150     200
Export
    456     403     430     500
Consumption
    6 654    6 846    6 980    7 686
Source: CCR