In the early stage, short fiber operating rates rebounded, short fiber production increased, and crude oil and PTA fell sharply. In the absence of significant improvement in downstream demand, the market has strong pessimistic expectations for short fiber futures. In mid-July, short fiber futures fell to this year’s low, while spot prices were relatively resilient, with the basis once exceeding 1,100 yuan/ton.
Negative feedback on the cost side is weakened
In the week ending August 5, U.S. EIA crude oil inventories increased by 5.458 million barrels, compared with an expected increase of 73,000 barrels, and the previous increase of 4.467 million barrels. Last week, the U.S. Strategic Petroleum Reserve inventory decreased by 5.297 million barrels to 464.6 million barrels, a decrease of 1.13%. In the week ending August 5, U.S. EIA gasoline inventories decreased by 4.978 million barrels, compared with an expected decrease of 633,000 barrels, and the previous value increased by 163,000 barrels. Although U.S. commercial crude oil inventories have accumulated for two consecutive weeks, due to the continued release of strategic reserves in the United States, the inventory data of crude oil and petroleum products containing strategic reserves in the United States show that inventories are at low levels. There is a contradiction in the crude oil market between strong reality and weak expectations. The early price decline has largely reflected pessimistic expectations for the future.
At the same time, the operating rates of PTA and ethylene glycol both fell to the lowest level this year and remained low. According to statistics, the operating rate of PTA once dropped to 66.5%, and has now risen slightly to 68%; the comprehensive operating rate of ethylene glycol has dropped to a minimum of 44.2%, and has now risen to around 47%. The supply of PTA and ethylene glycol is at a low level, and the price performance is expected to be strong, which will weaken the negative feedback on the cost end of short fiber in the early stage.
There is little room for recovery in operating rate
In terms of new production capacity, although the scale of new production capacity is expected to be large this year, the production time is mainly concentrated in the fourth quarter, and short-term supply pressure is not great. In May, Xinfengming’s 300,000 tons/year cotton staple fiber production unit was successfully put into operation. In August, another set of 300,000 tons/year hollow and differentiated staple fiber production equipment is expected to be put into operation as scheduled. In the case of low production profits, it is more likely that other new equipment will be delayed.
In the first half of this year, short fiber output was 3.485 million tons, a decrease of 297,000 tons compared with the same period last year. In July, short fiber output was 639,000 tons, a significant rebound from the previous month. The apparent consumption of short fiber in the first half of the year was 3.042 million tons, a decrease of 477,000 tons compared with the same period last year. At the end of April, the short fiber operating rate once dropped to a low of 62.5%. Since May, the short fiber operating rate has continued to rebound and is currently around 81%, which is close to the normal operating level in previous years. From this point of view, there is little room for further recovery in the short fiber operating rate.
Terminal consumption is gradually improving
Affected by the epidemic, from March to May, the total retail sales of consumer goods and domestic clothing, footwear and hats textile consumption experienced year-on-year negative growth for three consecutive months. The decline in domestic textile and clothing consumption was even more obvious, -12.7% and -22.8% respectively from March to May. , -16.2%. As the domestic epidemic situation improved, in June, the total retail sales of consumer goods and domestic consumption of clothing, shoes, hats and textiles rebounded significantly from the previous month and turned positive year-on-year. As domestic textile and apparel consumption gradually comes out of the off-season, domestic terminal consumption is expected to continue its gradual improvement from August to September.
Basis has been repaired to some extent
Judging from the long-term spot price of short fiber, the spot price has long been running above 6,000 yuan/ton. Only in 2020 due to the epidemic, the spot price of short fiber briefly fell below 6,000 yuan/ton. On July 15, under the influence of the pessimistic market atmosphere, the short fiber futures 2301 contract fell to a minimum of around 6,650 yuan/ton, very close to the historical low area. From a relative price point of view, due to the continued sharp decline in futures prices in the early stage, the decline in spot prices was relatively small, and the short fiber basis gap once expanded to more than 1,000 yuan/ton.
In addition to the basis difference, the valuation level of short fiber can also be determined by the short fiber factory processing fee and the price difference between virgin and recycled staple fiber. If the spot processing fee for short fiber is less than 800 yuan/ton, the entire industry will fall into a loss; if the spot processing fee for short fiber exceeds 1,500 yuan/ton, the processing profit situation will be better. Generally speaking, when the price difference between virgin and recycled staple fiber is less than 500 yuan/ton, the price difference between the two is low; when it is higher than 2,000 yuan/ton, the price difference between the two is high. As of August 15, the spot processing fee for short fiber was 940 yuan/ton, and the price difference between virgin staple fiber and 1.5D imitation Dahua staple fiber was 1,370 yuan/ton. The basis difference of short fiber is about 330 yuan/ton. From a futures price perspective, short fiber futures prices are slightly undervalued.
Based on the above analysis, in the early stage, the short fiber market was pessimistic, and the short fiber basis gap once widened to more than 1,100 yuan/ton, which has now been repaired. In addition, the domestic supply of PTA and ethylene glycol is at a low stage, and the negative impact of upstream prices on short fiber is expected to weaken. However, with the marginal improvement in downstream terminal demand, short fiber prices are expected to come out of weakness and continue to rebound.