What Aspects Are the Industry Competitiveness of Polyester Concerned with?

By He Jiayi and Wang Wei, China Bond Rating Co., Ltd.

In 2016 and the first three quarters of 2017, the prices of polyester filament rebounded, industry profitability improved, but the industry was still in excess capacity status. In the short term, the demand will affect the industry boom change when the supply growth rate basically maintains 4%. In the long term, the current production capacity of 2.47 million tons (accounting for about 7% of total capacity) is to be eliminated. With the "13th Five-Year" supply side structural reforms, it is expected that the elimination will increase, and supply and demand will become an important factor affecting the prosperity of polyester filament industry.

Prosperity rises again

Up to now, the domestic polyester fibre production capacity is about 44.12 million tons, and polyester filament, polyester staple fibre and polyester industrial yarn account for 80%, 15% and 5% respectively. The polyester production capacity in Zhejiang province is about 20.04 million tons, accounting for about 45% of the nation’s total, ranking the first place; the production capacities of polyester filament and polyester industrial yarn in Zhejiang province accounted for the proportion of the national capacity of about 51% and 56% respectively. The productivity of polyester staple fibre mainly concentrated in Jiangsu province (48%) and Fujian province (19%).
In 2017, supply growth remained relatively stable, and demand was expected to improve. In 2017, China’s textile industry boom is likely to maintain low volatility trend, but the new capacity in Xinjiang and Southeast Asia and Africa still has some support to the growth rate of fixed asset investment. "The Belt and Road Initiative” led to an increase in polyester filament products exports increased, the production of textile industry will increase slightly. It is expected that the demand growth of polyester filament is 4%~8% in 2017.
At the supply side, it is expected to increase production capacity of about 1.43 million tons to 36.7 million tons in 2017, with a growth rate of about 4%. The operating rate of polyester filament showed a downward trend due to the impact of the downstream demand. According to the rough estimate of the capacity utilization of 70% in 2016, the output is about 25.69 million tons in 2017, the output growth rate is about 3.7%, which is lower than the demand growth of 4%~8%, and the relationship between industry supply and demand is expected to be slightly improved in 2017.
Four factors affect the price trend of industrial yarn.
As a branch of polyester filament, common polyester industrial yarn has similar industry characteristics compared with those of civil silk, such as industry overcapacity, the downstream demand influenced by macro economy greatly, obvious periodicity, the price trend to be more consistent with those of crude oil, PTA and ethylene glycol. At the same time, polyester industrial yarn has its own characteristics, mainly reflected in:
1. From the point of view of demand, as to the domestic demand, the downstream demand of civil polyester yarn mainly concentrated in the textile and garment industry, while the polyester industry yarn has excellent performance and relatively low cost so that it can substitute nylon, acrylic fibre, carbon fibre, aramid fibre and other raw materials used in automobile safety belt, air bags and other multiple fields. Hence compared to the  relative single downstream demand of civil polyester yarn, the demands of polyester industry yarn are more stable. As to exports, in recent years, exports increased year by year, amounting to 426 thousand and 900 tons in 2016, accounting for about 27% of the current output. Stable demand growth in foreign markets also formed a certain guarantee for the demand side. Overall, the demand of the polyester industrial yarn at home and abroad is relatively more stable compared to that of civil silk.
2. To entry high barriers, the polyester industrial yarn is a technology and capital intensive industries. The current market is basically divided by Zhejiang Guxiandao Incorporated Company, Zhejiang Unifull Industrial Fibre Co.,Ltd., Zhejiang Hailide New Material Co., Ltd. and Hengli Group.
3. From the point of view of industry concentration, up to the end of 2016, the domestic production capacity of polyester industrial yarn is about 2.06 million tons, of which the top five domestic production capacity accounted for 63%. Considering that the downstream demand of polyester industrial yarn is more dispersed, the price of the product is influenced by the cost side and supply and demand, and the higher industry concentration makes the bargaining power of the industry stronger than that of the civil polyester yarn industry.
4. From the point of view of the products, because the requirements of industrial yarn in the physical properties and downstream use, investment and other aspects are higher than those of the civil filament, the sales price is also higher than that of the civil filament. As to FDY industrial yarn and polyester yarn, the prices of FDY industrial yarn are generally RMB2 500~3 500/ton higher than those of the civil polyester yarn, but the main raw materials also are PTA and ethylene glycol (accounting for more than 80% of production cost of industrial yarn). The gross profit ratio of polyester filament is higher and the difference is bigger. The gross profit ratio of industrial yarn in the low-end will remain at around 16%, but the gross profit ratio remained at a relatively high level of 25%~30% partial to the high-end product. The average gross profit ratio in the whole industrial polyester fibre industry was significantly higher than that of civil polyester yarn at 5%~10%.
The polyester industrial yarn industry is expected to continue to improve profitability in 2017.

Competitiveness concerns costs and product specifications

Up to the end of 2016, there had been a total of 7 enterprises whose production capacity of the domestic polyester filament was more than 1 million tons, including Shenghong Petrochemical Group (1.65 million tons) and Hengli Group (1.6 million tons) in Jiangsu Province, Tongkun Group (3.48 million tons), Xin Feng Ming Group (2.48 million tons), ZHEJIANG HENGYI GROUP CO., LTD. (1.4 million tons), Rongsheng Chemical Fiber (1.1 million tons) and Zhejiang shuangtu New Materials (1 million tons) in Zhejiang province. As to polyester industrial yarn, Zhejiang Guxiandao Incorporated Company, Zhejiang Unifull Industrial Fibre Co.,Ltd. and Zhejiang Hailide New Material Co., Ltd. are the top three companies on  industry production of the polyester industrial yarn, with the scale of production capacity reaching 510 000 tons, 300 000 tons and 200 000 tons respectively up to the end of 2016, supporting more than 50% of domestic production of polyester industrial yarn. At present, the industry boom is still no substantive improvement. Under the above background, cost and product specifications are two main factors to determine the competitiveness of polyester enterprises.
The main factors affecting the cost are scale, industry chain, production process and financing cost.
First is scale. From the point of view of polyester filament, the operating rate of the large-scale enterprises in the industry (production scale of 1 million tons) remained at more than 90%, while smaller enterprises (300 000 tons) had a low capacity utilization rate to about 30%. At present, the domestic polyester filament products are still given the first place to the common structured products. In the case of the excessive production capacity of polyester filament structured products in China, enterprises with scale advantages have competitive advantages in structured products. At the same time, the difference of management cost, energy consumption, depreciation and so on brought about by different scale will lead to difference in cost side.
Second is the industrial chain. Enterprises of polyester industrial yarn do not have the advantage of industry chain, while industry chain is mainly with polyester filament civilian enterprises. At present, the profits of polyester industry chain are mainly concentrated in the PX link, and in recent years the average profit of PX is about RMB660/ton. In general, the more perfect the polyester industry chain is, the stronger competitiveness at the same time and the lower the cost are. To make a rough estimate according to the data in 2016 and in January-May 2017, the production cost of polyester in the enterprises with the PX industry chain reduced by about RMB680/ton and RMB515/ton. From the extent of the industry chain matching, the current PTA industry is still in a loss stage. The losses were about RMB157/ton and RMB90/ton in 2016 and January-May 2017 respectively. PTA production capacity in the industry chain is mainly matched with the production needs of the downstream polyester, and the enterprises with excessive PTA production capacity will pull down the overall profitability of the industry chain. Overall, the industrial chain not only has the cost advantage, but also can avoid the business risk caused by the price fluctuation of single product.
At present, there are few enterprises with industry chain advantages, and most enterprises in the industry are still facing greater cost control pressure.
Third is production process. At present, the mainstream technology of polyester industry has been changed from slicing spinning to melt direct spinning (the capacity ratio of direct spinning and slicing spinning is about 2:1), and melt direct spinning process can save RMB200~RMB300 per ton. At present, the new and under construction capacity of civil polyester filament mainly use melt direct spinning technology; as to industrial polyester fibre, because of technology patents, the liquid-phase viscosity increasing technology is only mastered by a few companies. Using the liquid-phase viscosity increasing technology, the energy consumption per unit decreased 25%, and spinning efficiency increased 50%~100%. In addition, chip spinning technology can produce differentiated products according to the needs of downstream customers, and melt direct spinning technology mainly produces single scale products. Overall, at present, in the case of structured excess capacity, enterprises with a higher proportion of melt direct spinning technology, has relatively large profit margins and relatively obvious market competitive advantage.
Fourth is financing costs. Since 2017, the bank financing environment of polyester enterprises in Zhejiang province has changed little compared to that in 2016. The cost of financing can reflect the competitiveness of enterprises to a certain extent. In the case of low prosperity of the industry, the enterprise’s own operation and financial performance can determine the cost of financing. From the cost of indirect financing, for enterprises in the industry with relatively good profitability or scale advantages, the financing environment is relatively loose. Overall, the financing costs of polyester enterprises in Zhejiang province are still seriously differentiated, and the financing environment of enterprises with small scale, poor operation and poor financial performance remains tense.
From the point of view of the product specifications, in recent years the enterprises without the scale advantages in the industry gradually seek different routes, such as Dongli Polyester Filament (Nantong) Co., Ltd., and the profit is considerable. The production capacity of polyester filament is only 120 000 tons, but with the super elastic value and subdivision of the product’s unique market share, the product sales price can reach more than RMB30 000/ton. Compared with the ordinary structured filament product, the price is higher, and the technical barrier is high. At present, domestic ordinary industrial yarn of polyester industrial yarn is still mainly in the low-end. In the case of 1000D/192F, the price of high strength and low shrinkage yarn is RMB400~RMB1 000/ton higher than that of the ordinary high strength type yarn. Overall, the enterprises with differentiated products in advance are competitive with the higher profit level.