Chemical fiber "pain period" break the "three consecutive questions"

Event background

On July 19, the news of the closure and liquidation of Jiangsu Changle Fiber Technology Co., LTD. (hereinafter referred to as Changle Fiber) caused waves in the polyester circle. In the impression of the Futures Daily reporter, this old enterprise once had a good industry reputation and advanced business philosophy, and it is also the only station for industrial research in Jiangsu line. All kinds of "halo" from dazzling to fade, why did Changle fiber come to this step today? What kind of inspiration and thinking does it bring to the industry behind its exit?

Some industry veterans say bluntly that at present, the chemical fiber industry is in the "pain period" of deep integration, and Changle fiber is neither the first one to shut down, nor will it be the last.

"Affected by the epidemic situation and the market environment, the company began to stop production on April 12, 2022, after the epidemic situation improved, due to the impact of the industry has been unable to resume production, until now the company's serious losses can not resume production, after the company's research decided to shut down." Jiangsu Changle Fiber Technology Co., Ltd. made the above explanation on the notice of termination of labor relations and economic compensation through negotiation of the company's closure.

In this regard, the futures Daily reporter also to Changle fiber related person in charge Xue Qiang (pseudonym) to verify, Xue Qiang said that the shareholders have shut down the polyester factory, related equipment will be processed, land and plant will also be rented. "We are actively choosing to stop and exit. The environment is not good, and it is difficult for a single variety to resist a cyclical downturn." He said that the polyester industry as a whole profit loss, business has been miserable for a long time, as a direct stop loss.

Changle Fiber is a typical representative of medium-sized enterprises in Jiangsu chemical fiber (polyester filament) industry. The maximum designed annual capacity of 300,000 tons, all the production of polyester POY, more than half of the production line to produce a good market prospect of differentiated fiber - porous fine denier flat silk. "In terms of the current industry scale, the capacity of Changle fiber is small, but it also has its own many advantages." Wu Wenhai, a senior figure in the chemical fiber industry, said that, for example, the factory is located in the hometown of China's bomb - Huangjing Town, Taicang City, Jiangsu Province, deep industrial cluster, convenient sales, can adjust the production variety in time according to changes in the downstream market to better meet customer needs.

The reporter learned that since the plant was completed and put into operation in 2012, it has shown a prosperous pattern of production and sales for many years. In the past 3-5 years, with the continuous improvement of industrial concentration in the chemical fiber industry, the industry's leading enterprises have entered the stage of production capacity competition, the degree of integration and scale continues to improve, the market competition continues to intensify, and the living space of small and medium-sized chemical fibers without scale cost advantages has been continuously compressed.

"At the beginning of production, Changle fiber was positioned to produce flat silk with more market prospects, and once led in this segment for many years." As "Giant" chemical fiber companies such as Tongkun and New Fengming speed up production capacity investment in this field, the market supply is saturated and entering the stage of excess, Changle Fiber's product advantages are gradually losing, and its benefits are gradually deteriorating." Wu Wenhai said.

Since the outbreak of the global epidemic in 2020, the demand for textile and apparel has been greatly hit, and the anti-risk ability of small and medium-sized enterprises in all links of the industrial chain is far less than that of large enterprises in all aspects, and it is difficult to stick to the day when the market improves. Today, the liquidation of the factory is also a helpless "stop loss" move for corporate shareholders. As a former member of the factory, Wu Wenhai also felt very sorry for the closure of Changle fiber. "Although Changle Fiber is a medium-sized chemical fiber production enterprise, its name is far from Hengli, Shenghong and other enterprises in the region, but it still has a good reputation in the industry, especially the management's advanced business philosophy." He said that in terms of sales, Changle Fiber has been implementing a low inventory strategy, and attaches great importance to timely adjustment of product production plans according to customer needs. In terms of procurement, the company recruited management talents who understood futures very early, and paid attention to the use of PTA(5756, 120.00, 2.13%) futures for price risk management at the beginning of production. Plate hedging, futures purchase and delivery, spot and contract goods using futures point price procurement are at the forefront of the industry.

Behind Changle Fiber's "withdrawal", it illustrates the embarrassing predicament faced by the small and medium-sized chemical fiber manufacturing industry. In recent years, polyester production capacity has maintained a high growth rate, market competition has further intensified, and large enterprises have accelerated the competition for market share. The polyester industry began to clear the old capacity, and Changle fiber is only a microcosm of the Red Sea competition in the entire industry.

"In recent years, large-scale enterprises have put into production at high speed, and industry competition has intensified. In the face of this pressure, small enterprises in the polyester industry investment is correspondingly reduced, investor withdrawal also occurs. Since April this year, the market has continued to hear the news that some textile companies are not operating well or have gone bankrupt, and some supply chain finance companies have also been affected." Chen Sheng, analyst of International Trade futures, said that in the case of a decline in domestic and external demand, it is an indisputable fact that the operation of polyester enterprises this year is difficult, and the downstream spinning and weaving is a large number of high-priced finished products.

According to Wu Wenhai, this year, even the head of the "big MAC" chemical fiber enterprises are facing continued high inventory, operating losses are huge pressure, and some head enterprises have issued a call for managers to take the lead in significantly reducing salaries. Enterprise management pressure is not an individual phenomenon, but a universal phenomenon.

In the interview, the reporter also further learned that, in fact, small and medium-sized enterprises that have successively withdrawn from the polyester filament production industry have not been cases in recent years. Some small and medium-sized chemical fiber enterprises with older qualifications that are 6-7 years earlier than the Changle fiber factory have also taken the initiative to dissolve and liquidate in the previous two years.

Now, in front of the enterprise is no longer able to "earn" but "how long", in the face of the current industry ushered in the "big reshuffle", chemical fiber enterprises to objectively understand their own ability in the ask, rethink, to meet the "lifeline" challenge. Are chemical fiber companies ready?

Question: Where is the "crux" of the industry

"Pain period", every chemical fiber enterprise needs to look at the situation objectively.

For the polyester industry chain, the "sticking point" of the industry is mainly reflected in the dual pressure of high cost and low demand. High inventory, low profits, and low load have become the norm of the industry this year, accelerating the industry reshuffle process, and some enterprises have been forced to withdraw.

"China's chemical fiber weaving industry is facing a huge 'pain period' of insufficient effective demand and overcapacity." Wu Wenhai said that in the case of increasing production capacity and supply, the growth rate of demand has slowed down or even negative growth, the product inventory cycle of enterprises has been lengthened, the production efficiency has been declining, and the pressure of the business environment has been increasing.

In his view, global textile and apparel demand has been weakened by the impact of the epidemic for three years. The situation in Russia and Ukraine stimulated international oil prices to continue to rise to near 100 yuan per barrel, intensifying global inflationary pressure. In the first half of this year, the industry faced not only the problem of falling demand, but also the problem of rising raw material costs driven by high oil prices.

"The chemical fiber industry's own capacity investment growth is still strong, exacerbating the contradiction of oversupply in the market." In the second half of the year, the market has shifted from trading inflation to trading expectations of economic recession, and the price of chemical fiber raw materials has plummeted, bringing huge inventory depreciation risks to enterprises." Wu Wenhai said.

In this regard, Pang Chunyan, senior analyst of SDIC Anxin futures, also said that after the industry experienced the 2017-2019 business cycle, the overall prosperity has declined in recent years, and the global pandemic has led to changes in the rhythm of the industry, with the overall impact mainly on the consumption end.

"In 2022, the recovery of the post-epidemic period and the geopolitical conflict between Russia and Ukraine led to the logistics restructuring of the global oil market, which had a profound impact on the chemical market, the overall performance is strong costs, weak demand, and the middle link of the industrial chain is under the double squeeze of upstream and downstream." Pang Chunyan told the Futures Daily reporter that at present, this "pain" is still continuing, polyester and downstream textile printing and dyeing starts are at a low level, and negative feedback pressure on consumption still exists.

"Compared with previous years, this year is affected by the epidemic, and domestic textile and garment consumption is weak. The sharp rise in raw materials did not drive the market to raise prices and destock, but compressed market demand, and the price transmission of the industrial chain was not smooth. In the context of weak domestic demand, external demand is also difficult to prop up market demand, and the cumulative value of textile industry export deliveries continued to decline year-on-year." Chen Shengru is saying.

According to Chen Sheng, downstream weaving began to reduce production in April, and this production reduction has continued from April to now, and has not yet improved. Some of the production of cotton mills from three shifts to two shifts, and every festival will have a holiday, which is relatively rare in previous years. The autumn and winter clothing proofing that should have started in July is currently being carried out by only a few companies. "Affected by the epidemic, the textile industry basically missed the peak season in the first half of the year. The sharp decline in raw materials has exacerbated business risks, and high-priced polyester and yarn inventories have depreciated sharply in July."

"At present, the entire industry is facing the dilemma of high inventory and low operating rate. Overall, the negative feedback pressure of sluggish consumption still exists." Pang Chunyan said.

In Wu Wenhai's view, with the development of the market, the business cycle of the chemical fiber industry is getting shorter and shorter, and it has re-entered the downward cycle since the fourth quarter of 2021. "At present, China's domestic demand has entered a period of low-speed growth, and the rise of low-end textile industries in Southeast Asian countries has constantly grabbed the export share of China's textile and apparel to developed countries." China's chemical fiber industry demand is facing a long period of downturn, which is also the fundamental reason why China's chemical fiber industry has entered the 'pain period'."

Second question: How to achieve enterprise breakthrough

The withdrawal of Changle fiber shows that the chemical fiber market in the post-epidemic era has begun a new round of reshuffle, the polarization of the market has intensified, and the head effect has become more obvious.

In fact, at present, the chemical fiber industry is experiencing a continuous increase in capacity concentration, and small and medium-sized enterprises are constantly being integrated and eliminated.

"In recent years, the polyester (filament) industry has accelerated into the stage of large-scale and integrated development. Industry leading enterprises are strong, and the industrial chain continues to extend to the upstream raw material end. At present, four enterprises have successfully extended their development to the refining end, and solved the bottleneck problem of the raw material end that plagued the development of enterprises." According to Wu Wenhai description, after the vertical integration of the upstream and downstream industry chain, it will in turn require the downstream industry links to continue to expand the scale, the need for greater downstream production capacity to support digestion, China's polyester industry is deepening the scale development of the whole industry chain.

In his view, some of the head enterprises are not only the first polyester filament staple fiber production capacity, but also the first upstream raw material PTA and PX scale.

Changle fiber to filament production, in recent years, the industry capacity to the leading enterprises concentrated. At the same time, under the background of integrated advantages of leading enterprises, the living space of enterprises solely based on conventional filament production is getting smaller and smaller, especially under the impact of public health events, consumption is declining, and traditional production enterprises are facing a severe test.

"The trend of industry development is large-scale and integration, and leading enterprises have obvious comparative advantages in the response to market risks." At the same time, companies that do not have scale and integration are also looking for ways to differentiate." Pang Chunyan analyzed that in the past two years, the industry reshuffle was inevitable, and sudden public health events only accelerated the reshuffle in the industry. In her view, in the process of changing the industry pattern, it is necessary for chemical fiber enterprises to prepare for danger, take precautions and consider risk response measures in advance.

At present, the domestic polyester and polyester production capacity is growing too fast, and the production capacity structure is showing a structural surplus problem. "The current chemical fiber industry has a surplus of ordinary fibers but a shortage of differentiated fibers." Tao Jiayi, information analyst of China Silk City network, told the Futures Daily reporter that in recent years, Dacheng has not been satisfied with simple fiber production, but began to extend upward and downstream, some leading enterprises have built refining and chemical integration projects, and Dacheng has begun to get involved in downstream weaving. At the same time, when large factories build new capacity, they begin to tighten in the direction of differentiated fibers.

Tao Jiayi believes that the reshuffle will lead to some small and medium-sized chemical fiber enterprises to withdraw from the market because of competition, and some small and medium-sized chemical fiber enterprises with core competitiveness in technology will make more efforts in functional, differentiation and other segments. Every time the industry reshuffle, the industry concentration will be increased again, and the same is true of this industry reshuffle.

Industry insiders believe that the concentration of production capacity in the entire industry has been further improved, and market competition has become more intense. The capacity share of leading enterprises will be further increased, while some small and medium-sized enterprises will withdraw and some will transform. For example, do differentiated products, or expand downstream, find their own development model, to avoid direct competition with leading enterprises.

In this regard, Chen Sheng explained that large enterprises continue to seek to extend upstream, open up the whole industrial chain, and reduce the impact of market fluctuations on business operations. Such a development strategy strengthens the competitive advantage of integrated enterprises in the industry and reduces the impact of industry cycle fluctuations on corporate profits. At the same time, in order to avoid the competition of big currency, medium-sized polyester enterprises are increasing investment in special silk, differentiation, environmental protection and other aspects, seeking to form advantages in the field of segmentation.

It is worth mentioning that in the 2022 "Futures Everyone talk" commodity mid-year summit chemical fiber special session hosted by Futures Daily, Wan Lei, secretary-general of the Polyester Filament branch of the China Chemical Fiber Industry Association, said that in the context of carbon peak and carbon neutrality, environmental protection policies are becoming stricter, and enterprises that do not have competitive advantages will gradually be eliminated by the market.

"Large leading enterprises will continue to expand by virtue of their scale and technological advantages, and the industry concentration will gradually increase, and the polyester filament industry will enter the development stage of the strong and constant strength." Wan Lei said that in the face of huge external and own pressure, China's polyester industry can only achieve sustained high-quality development by practicing basic skills.

"On the one hand, adhere to basic research and carry out independent innovation, further promote product differentiation, functionalization and high-end development, improve the added value of products, and achieve high-quality development of conventional fibers." On the other hand, explore the carbon neutral development mode and green low-carbon transformation, increase the research and development of green technology and equipment, strengthen the transformation of clean production technology and the promotion of key energy saving and emission reduction technologies, explore the carbon peak route in the polyester filament industry, and explore the implementation path of carbon reduction in the industry." Wan Lei said.

Question three: How to cross the "pain period"

From the current market situation, the energy shortage will continue in the short term, overseas economic recession or inevitable, external demand will show a trend of decline in the medium and long term, and the domestic epidemic will be repeated, which will still drag down domestic consumption. High costs and weak demand are difficult to change in the future for some time, the plight of the chemical fiber industry will continue, and the "pain period" of the chemical fiber industry will continue for a long time.

"The capacity growth of the polyester industry has not declined, and the future release of new capacity will continue." The global economy is facing the risk of recession, and the competition between Southeast Asia, India and China in the textile and apparel sector is also intensifying." Chen Sheng believes that in the environment of weak consumer demand for textile and apparel, the reshuffle of the chemical fiber industry is difficult to avoid.

In Tao Jiayi's view, the top priority for chemical fiber enterprises is to control cash flow and inventory, and optimize their own team management. At the same time, find a suitable track, concentrate on breaking through, and give play to their core competitiveness.

"Comply with the current market situation, chemical fiber enterprises in order to survive the most difficult period." On the one hand, look for the differentiation and diversification of products, in order to resist the risk of single varieties and increase the added value of products; On the other hand, we should consider walking on 'multiple legs' and use financial tools to appropriately resolve the problems of enterprise survival and improve competitiveness." Pang Chunyan analysis said.

"As far as chemical fiber enterprises are concerned, timely adjustment of market expectations, good inventory management, in the upward stage of the market, through promotion and other ways to reduce inventory pressure, timely preservation of inventory work, so that enterprises in the downward price cycle to maintain profits." Wu Wenhai said.

It can be seen that in recent years, with the improvement of industrial concentration, large polyester enterprises have shown greater advantages in financing, policy research, personnel allocation and other aspects, and large polyester enterprises have more in-depth cooperation with investment research institutions and futures companies, and the use of options has also shown comparative advantages. When the overall prosperity of the industry declines, the relative advantage of large enterprises will be more obvious.

In view of the current predicament, the best choice for enterprises is to appropriately reduce the insured price, actively shrink the supply, and maintain low inventory of products. On the one hand, reduce the inventory pressure and ensure the cash flow of enterprises; On the other hand, reduce loss pressure. In terms of raw materials, you can consider using financial derivatives such as futures or over-the-counter options to hedge exposure risks and do a good job in risk management of sharp fluctuations in raw material prices.

"Getting through the pain requires subtraction." Wu Wenhai admitted that chemical fiber enterprises should reduce projects or business investments that cannot generate cash flow in the short term, improve inventory turnover, and reduce the amount of working capital occupied by inventory. He said: "Enterprises can use the futures warehouse receipt business to activate the amount of capital, and actively hedge the risk of product price fluctuations by using financial derivatives such as futures and options in daily operations. Make a reasonable hedging plan, maintain the value of product inventory, strengthen risk control, and stabilize the production profits of enterprises."

In the view of the interviewees, the "pain" of the chemical fiber industry may be alleviated in the traditional peak season, but really out of the need to see the macro stabilization. When residents' employment and income grow steadily, their willingness to consume rises, and the industry enters a new round of business cycle, it will walk out of the haze and usher in the dawn.