Markets are set to move up at cost at 3-5 cpp for all fiber grades. With PX and MEG actually settling before the end of the month, values should move up in short order. The adjacent graph shows that fibers are actually making a bit more margin this August compared to last. This is primarily due to declining PX and MEG values as global conditions have dictated declines. Future increases are dependent on resurgence in retail orders globally ahead of the fall fiber runs.
PET fiber markets are set to move up with increasing costs in both PTA and MEG. Filament grades should be moving up stronger than those in staple as is the case in Asia. Substitution through imports largely drives these markets so this will also determine the movements seen in these markets.
Fiber markets are now on the rise as the PET chain begins preparation for the winter buying season. Demand has improved with buyers restocking early in anticipation of higher PX/PTA costs going into September. Derivative production has also started to ramp up with signs pointing to a recovery in China’s economic and manufacturing sectors going into Q4. China’s CPI growth was only 1.8% in July, the lowest since February 2010. The cool down in China’s economy should make it easier for the government to justify more subsidies going forward to boost domestic consumer spending and preferably in place before China’s major holiday on October 1. Combined with overseas retail orders ahead of Christmas, players hold an increasingly optimistic view for PET Fibers over the next two months.
The only negative factor has been the flat price trend for cotton, which means that the cotton-PSF gap has shrunk considerably (approximately Rmb 600 in China) over the past 15 days. While cotton fiber demand is also expected to improve particularly in South Asia, China’s artificially high cotton price (due to price controls) will make is difficult for their producers to push up values even if Indian and Pakistani cotton firms up. Note that 1.5d PSF has firmed up $60-$80 just this week while filament is up Rmb 300-500 across the board in China. While we expect PET Fiber to eventually stabilize as buyers complete restocking, garment producers could shift their blends more towards cotton for the winter buying season should PSF prices rise too fast, too soon.