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Polyester Yarn Price Update Part One: Understanding Cost Swings

Industrial Polyester ProcessingI’ve been in the industrial yarn business for 21 years and haven’t seen anything quite like the current polyester pricing situation. If you buy or sell synthetic yarns, I’m sure that you feel the same way. The fast pace of the modern business environment has impacted every market’s volatility, even the very mature ones (read “old textile businesses”).

For the past five years, polyester pricing has remained fairly manageable from quarter to quarter. We saw slight increases or decreases every three months but the changes were slight to moderate. We had several long stretches of time where pricing was flat. During times of movement, pricing increased or decreased by a nickel or less.

Since late October 2016, this stability has been non-existent. Rising costs and dynamic market forces thrust the polyester industry into a volatile time. Pricing went up almost daily. Some increases were as much as $0.25/lb. (albeit, prices were at an all time historical low). Chinese producers were quoting prices that were valid until the end of the day because they didn’t know what raw materials and market prices were going to do from one day to the next. Given a 12 hour time difference with the east coast of the US, our task was extremely complicated.

What drove this? To understand more, you need to look at the finer details: 

  • Raw Material Increases – Polyester is produced from the barrel of oil. You combine Mono- Ethylene Glycol (MEG) and Purified Terephthalic Acid (PTA) to create Polyethylene Terephthalate (PET or “Polyester”). Raw materials increased rapidly last year as oil escalated. Oil has declined in recent months but PTA and MEG pricing has not followed as closely as expected. PTA is ONLY used for polyester production. It has no other commercial use in the entire world. Production capacities and utilization rates of PTA and MEG suppliers also has an impact on pricing.
  • Ocean Freight – Ocean freight is another large cost driver. China operates 70% of the world’s industrial polyester capacity so ocean freight cannot be avoided. Hanjin declared bankruptcy in late 2016, further adding to the volatility in the market. Ocean freight costs increased $0.05/lb. in some cases. In an industry that operates on thin margins, this can be the difference between profitability and negative returns.
  • Market Forces – The polyester market was robust in 2016, driven by strong automotive build (seatbelts, tire carcass plies, airbags, hose reinforcement, power transmission belt reinforcement, interiors) and general business conditions. The supply/demand equation definitely had an impact on market pricing.

One of my former bosses once told me “the difference between oversupply and undersupply can be one container”. I didn’t believe it then but I am starting to think that he was right (yes, you were correct, Winston Carroll). Tightness in the market can send a large amount of customers, brokers, suppliers, distributors and end users to request quotes and place PO’s. It only takes one late shipment to cause a ripple effect in the industry.

Torry Losch is Sales Director at Hailide America and guest blog post writer for Service Thread. Torry has 21 years of experience in the textile industry and is viewed as a mechanical rubber goods and technical fiber / yarn expert.

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