China Chemical Fibers Association
China's chemical fiber industry has been challenged by complex and severe situations at home and abroad as well as multiple headwinds since 2022. Under the pressure of high inventory and weak demand, the average operating rate of chemical fiber plants is much lower than that in 2021, and producers are struggling to gain profits. There remains a variety of uncertain factors during the whole year, but under the government’s general principle of "pursuing progress while ensuring stability" for the domestic economy, the operating environment of the textile & chemical fiber industry is generally stabilizing, leaving little room for the market downside.
Basic industry profile
1. Production and sales
According to the National Bureau of Statistics, the output of chemical fiber was 50.51 million tons during January-September 2022, down by 0.32% from the same period of last year, and down by 0.84 percentage points from that during January-August. Figure 1 shows the details.
Figure 1 Year-on-year growth rate of China's chemical fiber output in 2022
As for operating rates and inventory, year to date, the overall operating rates of the chemical fiber industry are weaker than rates of the same period of last year, adding pressure to the sales, so the inventories of some products stay high. Significant reduction in the operating rates was seen twice this year. The operating rates fell sharply in March and April amid the pandemic, especially in Shanghai and the Yangtze River Delta that significantly hampered the logistics, transportation and demand for internal circular consumption. In July and August, a traditional off-season, the operating rates decreased sharply in the face of high inventory and weak demand, combined with blackouts due to high temperature in some regions. Figure 2 shows the details.
Figure 2 Operating rates of major chemical fiber segments in China from 2020
The operating rates have been recovering and the inventories have been decreasing since September, as the chemical fiber industry has entered the traditional peak season and downstream demand has perked up due to the loosening and cancelation of blackouts amid the colder weather. By the end of October, the average operating rate of direct-spun polyester filament industry was about 73%, up by four percentage points from that in August; the average operating rate of nylon was 75%, up by 13 percentage points from the low in August; the average operating rate of spandex reached 83%, up by more than 30 percentage points from the low in August.
2. Market prices
Big volatility of crude oil prices at high levels has been a major drag to the chemical fiber market since this year. The prices of crude oil rose by over 60% in the first half of the year, greatly adding the costs of raw materials and energy to the chemical fiber industry. In the third quarter, the prices of crude oil fell rapidly, even to the year-start level. Despite the sharp reduction in the feedstock cost, the chemical fiber market lost momentum, and accordingly, the prices fell continuously and sales became difficult. The depreciation of inventory seriously eroded producers’ profits. Table 1 indicates the prices of main chemical fiber products and raw materials in 2022.
3. Import and export
According to the statistics of China Customs, the total import volume of main chemical fiber products from January to September decreased by 39.97% year on year; the export volume increased by 8.90% year on year. In addition, the export of polyester bottle chips has performed well in the recent two years. The export volume saw a year-on-year increase of 36% in 2021, and during January-September 2022, the volume rose sharply by 54.18%, up by 9.18 percentage points from that during January-June 2022. Table 2 shows the details.
4. End-user market
As China has introduced a series of supportive policies to stabilize growth and stimulate consumption, the domestic sales of textiles and clothing improved in the third quarter of 2022. According to the National Bureau of Statistics, the retail sales of clothing, shoes, hats and knitwear and textiles above the designated size in China in the first three quarters were down by 4% year on year, and down by 2.5 percentage points from that in the first half of the year. In terms of external demand, the textile export market grew well, and the total export volume hit a record high. According to China Customs, China's textile and clothing export value in the first three quarters totaled US$248.35 billion, up by 9.1% year on year. The growth rate was faster than that in the same period of last year by 3.6 percentage points. Among the main products, the export value of textile was US$114.33 billion, up by 8.7% year on year; the export value of clothing was US$134.02 billion, up by 9.4% year on year. As for major export markets, the proportion of export value of China's textile and clothing in the United States, the European Union and Japan increased by 2.4%, 9.5% and 2% respectively year on year, and the export value in markets along the "the Belt and Road initiative" path and RCEP trading partner countries increased by 17.7% and 15.6% respectively year on year.
5. Economic benefits
China's chemical fiber industry has been under great economic performance pressure since 2022. The high base number in 2021 caused the economic benefit index to suffer a significant year-on-year decrease. According to the National Bureau of Statistics, the revenues of chemical fiber industry from January to September was RMB810.9 billion, up by 7.69% year on year; the operating costs increased by 13.64% year on year; the profits totaled RMB17.7 billion, marking a year-on-year decrease of 63.42%.
6. Fixed asset investment
The fixed asset investment in the chemical fiber industry grew steadily. According to the National Bureau of Statistics, the fixed asset investment in China's chemical fiber industry during January-September increased by 32.0% on a year-on-year basis, flat with the annual growth rate in 2021. The capacity ramp-up was mainly from leading producers.
Outlook for 2022
On the cost front, it is highly likely that the international oil prices will be consolidated in the fourth quarter on the back of the economic slowdown and worse inflation, and the moving range will be weaker than that in the previous three quarters, which will bode well for the stability of the chemical fiber market.
On the demand front, China's economy has recovered in a relatively short period of time amid the renewed COVID-19 outbreaks, showing its strong resilience and huge potential. On October 26, the executive meeting of the State Council has introduced a series of policies and follow-up measures to stabilize growth. More and more tailwinds combined will be conducive to further clearing the way for the textile industrial chain cycle based on the domestic demand and strengthening the confidence in the industry development.
It is expected that China's chemical fiber industry will remain under big pressure in the whole year, but the further implementation of policies and measures will have more positive effects on the stable operation of the chemical fiber industry. The annual data shows that the output of chemical fiber is expected to be roughly flat with that in the previous year; the revenues of chemical fiber industry are still expected to have a positive year-on-year increase, and the overall profit is expected to improve compared with the first three quarters.