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The chemical fiber industry is once again facing challenges as raw material price fluctuations have begun to impact operations. Since July, rising oil prices have caused a surge in the cost of key chemical fiber raw materials, putting further pressure on production costs. This has cast uncertainty over the industry's recovery that was seen in the first half of the year, raising concerns about its performance in the second half.
In the first half of 2024, the chemical fiber sector showed signs of improvement. Sales volumes increased, utilization rates rose, and overall profitability improved significantly. Notably, industry profits jumped by 51% year-on-year, with most listed companies reporting growth in both revenue and net income. However, this recovery has been overshadowed by recent volatility in raw material prices.
One of the key factors behind the profit growth in the first half was the relatively stable pricing of PTA (Purified Terephthalic Acid), which is a critical component in polyester production. According to Guo Jian Securities analyst Zhang Jianfeng, the industry’s low base from previous years contributed to the sharp increase in profits. Meanwhile, analysts from the China Chemical Fiber Industry Association pointed out that the slowdown in the rise of raw material prices played a significant role in improving margins.
Ren Jing, an analyst at Guotai Junan, noted that PTA prices remained relatively low for most of the first half of the year before starting to climb in the second quarter. This allowed the chemical fiber industry to operate with lower costs during that period. The average market price of PTA only increased by 0.24% year-on-year, which helped boost efficiency in the polyester sector.
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 petrochemicals such as PTA, caprolactam, and MDI. In China, polyester, made from PTA, accounts for about 80% of the domestic chemical fiber market, making it highly sensitive to oil price movements.
Another key characteristic of the industry is its heavy reliance on imported raw materials. From 2003 to 2005, PTA imports reached 4.55 million tons, 5.72 million tons, and 6.49 million tons respectively, with import dependency hovering around 53-56%. Despite new PTA projects coming online this year, the industry still faces a high level of import dependence, making it vulnerable to global market fluctuations.
Currently, 23 listed companies are involved in the chemical fiber business. While six of them focus on artificial fibers, the remaining 16 specialize in synthetic fibers, including major petrochemical firms like Shanghai Petrochemical. Many companies have recently invested in PTA projects, including Sinopec’s Yangzi Petrochemical and Guangdong Fuhua joint ventures. Even G Power has announced plans to invest in PTA through a subsidiary.
As a downstream industry of petrochemicals, chemical fiber prices are closely tied to upstream price swings. After a sharp rise in PTA prices in July, the volatility reached nearly 20% compared to the annual low. This led to a significant increase in polyester and other chemical fiber products, with prices hitting highs of 15,000 yuan/ton and 13,000 yuan/ton—more than a 20% increase from the lowest levels of the year.
Analysts are concerned about the current trend of rising raw material and product prices. They warn that downstream industries may struggle to absorb these increases, and rapid price swings could lead to quick reversals. Past experiences show that excessive short-term volatility can create operational risks for companies across the supply chain, from chemical fiber producers to textile and manufacturing firms.
Industry experts suggest that chemical fiber companies need to adapt by adjusting their product structures and managing risks effectively. Governments could also play a role by implementing policies and exploring trading mechanisms, such as forward contracts or hedging strategies, to help companies mitigate financial exposure and improve long-term profitability.
In the end, the chemical fiber industry finds itself caught between rising costs and fluctuating demand, struggling to find stability in a volatile market. It must continue to seek opportunities amid the challenges.