Market and product

China’s polyester output is expected to be lower in August from the previous month, with plant operating rates in September likely to remain capped by increased uncertainty over the US-China trade spat.

August average operating rate of domestic polyester plants to date stands at 84.4%, down from July's full-month average of 86.4%.

Polyester production in the country began to slow down in July amid lacklustre downstream sales and growing concerns over possible US tariffs on downstream products such as garments, apparels and shoes.

Around mid-August, operating rates at Chinese plants increased, accompanied by a spike in their sales-to-output ratio, after the US said that tariff implementation on some chemicals and plastics would be delayed until 15 December from 1 September.

The delay in tariff implementation is mainly focused on cell phones, laptops, other electronic goods, as well as shoes and clothing.

US President Donald Trump had announced on 1 August that he would impose 10% tariffs on additional $300bn worth Chinese imports next month.

For September, some market players expect China’s polyester production to increase slightly, but the general consensus is that there will be little support for plant operating rates to return to peak levels of 87.5% in April and 86.6% in June, for the rest of 2019.

Lower production, meanwhile, enabled producers to keep polyester inventory levels at manageable levels.

Recent declines in domestic polyester prices have also enabled Chinese sellers to boost exports.

Buying has largely remained cautious amid volatile feedstock markets and weakness in global macroeconomic conditions.

China's polyester sales have mostly been lackluster in the year, with buyers largely adopting a cautious procurement pattern in which they only buy cargoes for immediate requirements.

End-users are expected to maintain this buying pattern going forward, in view of the ongoing US-China trade row.

This is also a reflection of ample spot market supply as Chinese polyester run rates are running at historical high levels despite sharp capacity additions in the last two years.

Lukewarm demand, coupled with increased supply, has seen polyester prices falling to levels last seen in mid-2017. - Source: ICIS-