Wuxi Yizhiling Locomotive Development Co. LTD , https://www.yizhilingev.com
The chemical fiber industry is once again facing challenges as raw material price fluctuations have started to impact operations. Since July, rising oil prices have caused the cost of key chemical fiber inputs to surge, increasing pressure on production costs and casting doubt on the industry's recovery that was seen in the first half of the year. This has raised concerns about the outlook for the second half of 2024.
In the first half of the year, the sector showed signs of improvement. Sales volumes increased, utilization rates improved, and overall profitability saw a significant boost. One of the most notable figures was a 51% year-on-year increase in industry profits, with most listed chemical fiber companies reporting growth in both revenue and net income.
A major factor behind this profit growth is the relatively stable price of PTA (Purified Terephthalic Acid), a critical raw material in polyester production. According to analysts, PTA prices only rose by 0.24% year-on-year in the first half of the year, which helped improve efficiency across the polyester supply chain. Some experts suggest that the low base of previous years' profits also contributed to the sharp increase.
Guotai Junan researcher Ren Jing noted that PTA prices remained relatively stable during the first half, fluctuating around 8,000 yuan per ton. He pointed out that even with increased imports, the price trend suggested a slight decline, and lower investment and output growth could further support the industry’s recovery.
The chemical fiber industry is divided into two main categories: man-made fibers, which use natural materials like cottonseed, and synthetic fibers, which rely on petrochemical products such as PTA, caprolactam, and MDI. In China, polyester—made from PTA—accounts for about 80% of the total chemical fiber output, making the industry highly sensitive to oil price movements.
Additionally, the industry is heavily dependent on imported raw materials. From 2003 to 2005, domestic PTA imports reached 4.55 million tons, 5.72 million tons, and 6.49 million tons respectively, with import dependency reaching 53%, 56%, and 54%. Despite recent domestic PTA projects coming online, the reliance on imports remains high, and it will take time to change this dynamic.
Currently, there are 23 listed companies involved in the chemical fiber sector. Of these, 16 focus on synthetic fibers, including major players like Shanghai Petrochemical and Sinopec’s Yangzi Petrochemical. Many companies have recently invested in PTA projects, showing confidence in the market potential of this key input.
As a downstream sector of the petrochemical industry, chemical fiber prices are highly sensitive to upstream volatility. After a sharp rise in PTA prices in July, the price swings reached nearly 20% compared to the annual low. This has led to significant increases in polyester and other fiber prices, hitting highs of 15,000 yuan/ton and 13,000 yuan/ton, up more than 20% from the lowest levels of the year.
Analysts are concerned about the rapid price increases, warning that downstream industries may struggle to absorb the higher costs. They also note that short-term price spikes can lead to quick reversals, similar to past patterns. Excessive volatility poses risks for companies across the supply chain, including those in textiles and manufacturing.
Given the current situation, the chemical fiber industry is caught between rising raw material costs and uncertain demand. Companies need to adjust their strategies, possibly through product restructuring or risk management tools such as forward contracts and hedging. The government can also play a role by implementing supportive policies and exploring new trading mechanisms to help companies navigate the volatile environment.
Ultimately, the chemical fiber industry is squeezed between rising costs and fluctuating demand, forcing it to find opportunities in an increasingly competitive landscape.