Polyester Sector Valuation Likely to Edge Higher

Last week, the polyester sector fluctuated upward. Some analysts said that geopolitical situation and fundamentals will be the main factors affecting the valuation of the polyester sector.

Li Si Jin, a senior analyst in the energy and chemical commodities division of China Construction Futures, said the main reason to the rebound in PX and PTA futures prices last Friday was the arrival of a policy-related positive research — from might 22, futures and options on the polyester sector chain will officially introduce foreign traders. This move by the regulatory authorities has efficiently improved market sentiment, optimized forward liquidity expectations, and helped the futures market to rise.

Zhejiang Futures analyst Zhu Lihang added that earlier in the week, the weak demand led to a negative feedback loop in the manufacturing chain, immediately resulting in the polyester sector's performance being weak; on the last trading day of the week, the futures prices of related varieties rebounded slightly due to the sharp rise in crude oil prices, the recovery of market sentiment in the chemical market, and the low valuation of the polyester sector.

Li Si-jin further analyzed that while the recovery of international oil prices has brought some cost support to chemical items, the overall upward driving force of the polyester sector last week is still insufficient, and the trading logic has shifted to the supply and demand game.

From the supply side, domestic raw material supply is greater sufficient compared to other regions in Asia, the PX unit load is at a relatively high level compared to the same period in recent years, and some suppliers are reselling June supplies, further rising the supply pressure in the spot market; while the PTA plant has a low operating rate and continues to minimize inventory, the total inventory is high, and the immediate supply and demand in the spot market are relatively loose. Li Sijin said that the demand side is currently in the traditional off-season, with limited new orders, and it is expected that the production reduction in the polyester sector will further expand, and the upstream reduction in load is earlier than the downstream, which helps to alleviate the contradiction between supply and demand in the manufacturing chain.

Zhu Lihang also believes that the expectation of supply tightening is the core driving force to the polyester sector. Currently, the supply of aromatics in Japan and South Korea has been significantly reduced, and the market relies on inventory to fill the raw material gap. The subsequent reduction in plant load might further expand. At the same time, while the negative feedback on the demand side is prominent at present, it is not as significant as the contraction of supply. Therefore, the focus should be on the direction of changes in the negative feedback on the demand side.

Li Sijin reminded that the main risk of the current polyester chain focuses on the oil blending expectations. Geopolitical conflicts have broken the original rhythm of oil product trade. The window period when the United States imported a substantial number of aromatics in March and April of previous years failed to appear as scheduled. The United States might face a shortage of oil blending this summer, which will further push up the PX price from the cost side. In addition, the passage situation of the Strait of Hormuz is crucial. If the strait remains blocked, it will exacerbate the tight supply of PX in Asia; even if it reopens, the queuing of oil tankers that have been backlogged in the early stage will result in a delay in the arrival time of raw materials at the factory. At present, the supply of PX in Asia has shown a regional contraction direction, and the evaporative situation in the Middle East has also brought additional export opportunities to China's chemical items.

Looking forward to the future market, Zhu Lihang believes that if the immediate Strait of Hormuz is re-opened and the supply crisis gradually eases, the valuation of the polyester sector will be under pressure. However, considering that the strait has been closed to a long time and there is a demand to inventory replenishment in the manufacturing chain, the price has limited room to fall; if the strait remains closed and the supply crisis continues, the polyester sector will have a substantial room to rise in valuation.

"On the whole, the polyester sector fluctuated last week amidst the pull and push between fundamentals and policies. We need to focus on the passage situation of the Strait of Hormuz, the direction of crude oil prices, and the changes in terminal demand, and respond prudently to market fluctuations," Zhu Lihang said.