After Hengyi Group acquired Longteng Chemical Fiber at the end of last year, it made another move to acquire Hongjian in March this year. However, it didn’t take long before news of the reboot of Soaring Dragon and Red Sword came in May! Coincidentally, insiders from Jiaxing Yipeng Chemical Fiber and Hangzhou Yijing Chemical Fiber also left messages on the WeChat platform of China Silk City Network yesterday, confirming the restart time of the two sets of equipment: the original Longteng will be opened on the 11th, and the original Hongjian will be opened on the 18th.
From acquisition to restart, Hengyi’s quick move reflects its own strength on the one hand, and on the other hand, it may be because it wants to seize this “good opportunity” in the market. After all, compared with the trough of previous years, the life of polyester filament manufacturers in 2017 was still “comfortable”.
But looking back at the PTA market, we see a different scene: in the second half of 2016, Reignwood Group acquired Far East Petrochemical, and in the fourth quarter there were rumors in the market that its 1.4 million tons/year unit was scheduled to restart in April 2017. However, now in mid-May, the market still shows no signs of the restart of installation plans. In addition, a 1.6 million tons/year PTA unit of Xianglu Petrochemical, which was suspended due to an explosion accident, was originally scheduled to restart in June, but there is currently no clear information.
After also experiencing a production shutdown, why can polyester filament production capacity quickly return to the market and “gain new life” at this time point, while PTA production capacity seems to be “daunted”?
There is no harm without comparison… The editor below will simply analyze the fundamentals of the two industries:
1. Upstream and downstream are “ice and fire”, and the profits of the industrial chain are all divided by downstream polyester
Judging from the data from January to April 2017, the theoretical loss value of PTA is expanding month by month, while the theoretical profit space of polyester filament (POY is taken as an example) continues to expand, and the profits of the PTA industry chain are mostly in upstream and downstream products. The upstream and downstream “ice and fire” situation has also given rise to a different mentality among PTA and polyester filament manufacturers.
If Far East Petrochemical and Xianglu Petrochemical restart their PTA units at this time, they will inevitably face the dilemma of production losses. At present, the profits of downstream polyester are relatively good, but the PTA supporting equipment of Far East Petrochemical and Xianglu Petrochemical is relatively simple, and it is impossible to make up for the losses of PTA with the help of upstream and downstream profits.
In addition, since the second quarter, although the polyester load has remained high, the PTA spot market transactions have remained tepid. Polyester manufacturers have been very cautious in purchasing raw materials because their inventory has been at a high level, which has taken up a lot of cash flow, and the upstream raw materials are in an obvious downward trend.
In order to ensure operating rates and reduce inventory backlog, PTA companies often can only win over downstream customers through price reductions. This is undoubtedly not a situation that manufacturers who have just returned to the market want to see. Therefore, when the overall profitability of the PTA industry has not returned to a certain level, these old and discontinued equipment may think twice before restarting.
2. PTA production capacity is not completely cleared, and the oversupply situation remains
The return of discontinued production capacity to the market will undoubtedly put pressure on the supply and demand side of the industry. However, the concentration of production capacity of polyester filament yarn and PTA is obviously different, so the impact of new production capacity will also be different.
Let’s take the companies mentioned above as examples: Yuan Longteng and Yuan Hongjian, both of which have a total FDY production capacity of 450,000 tons. By the end of 2017, the total polyester production capacity will exceed 50 million tons, so the production capacity will be 450,000 tons. It only accounts for 0.9% of the total production capacity; the two PTAs of Far East Petrochemical and Xianglu Petrochemical total 9.35 million tons/year, accounting for 19% of the domestic production capacity. The preliminary plan is to restart a total of 3 million tons/year, accounting for 6% of the domestic production capacity. .
Obviously, once the PTA production capacity is restarted, the impact on the market will be greater. As the current demand for polyester does not increase, domestic PTA may return to overcapacity. After all, in the current fully market-oriented competitive environment, the cycle of eliminating production capacity through survival of the fittest will be relatively long, so periodic shutdowns will not be of much significance to the long-term recovery of the industry.
Relatively speaking, after the polyester filament industry has experienced structural adjustments in the past few years, as downstream demand gradually recovers, the industry’s prosperity has rebounded significantly. From the current point of view, the new production capacity in the industry will be relatively limited in the future, so the overall supply and demand side is more balanced than PTA.
In addition, from the perspective of economies of scale, PTA companies such as Yisheng and Hengli have already formed obvious competitive advantages and have their own price say in the industry. At this time, the discontinued PTA production capacity re-enters the market. How can they survive the brutal competition? Getting a piece of the pie is something that manufacturers need to think about and study carefully.
Postscript: In short, whether it is the PTA industry or the polyester filament industry, when old production capacity exits, new production capacity will join. And in �On the market, as long as there is a glimmer of hope of making small profits, no one wants their production capacity to be eliminated. So the market is ups and downs, and it is easy to start a business but difficult to stay in business. If you want to gain a foothold in the fierce competition, companies must work hard to develop their internal skills, so that they can enter a sound and healthy development path with the industry!
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