Chemical Fiber Feedstock Futures Plunge: MEG Drops 2%, Polyester Cost Support Weakens

On the morning of July 2, China's chemical futures broadly weakened, with paraxylene (PX) and monoethylene glycol (MEG) both falling over 1%. MEG quickly extended losses to 2.08%, reaching 3916 yuan/ton, with a turnover of approximately 4.606 billion yuan and intraday open interest dropping by nearly 1,300 lots. This move is not an isolated incident but a concentrated release of accumulated supply-demand imbalances in the polyester feedstock chain. For the textile industry, the loosening of raw material costs is transmitting downstream, potentially triggering a new round of price adjustments in polyester filament, staple fiber, and grey fabric markets.

Event Background

The synchronized decline in MEG and PX is driven by two main factors. First, recent volatility in international crude oil prices has narrowed naphtha cracking margins, dragging down the aromatics and olefins chains. Second, MEG's own fundamentals remain weak: domestic coal-to-MEG plant operating rates have rebounded to over 60%, while port inventories remain high at 1.05-1.10 million tons, with destocking significantly slower than market expectations. Meanwhile, although polyester operating rates hover around 86%, new orders from downstream weaving enterprises are insufficient, with loom operating rates in Jiangsu and Zhejiang falling from earlier highs to about 67%, leading to persistently low polyester product sales rates and rising finished goods inventories.

On the PX side, despite expanded maintenance schedules at Asian PX plants, downstream PTA factories have actively reduced operating rates due to low processing margins, shrinking PX demand and preventing price support.

Industry Impact

For polyester plants, lower feedstock costs mean reduced procurement expenses in the short term, but also intensify market wait-and-see sentiment. Most polyester factories now adopt a 'hand-to-mouth' procurement strategy, with low willingness to stockpile. The decline in MEG futures with falling open interest reflects long fund exits and a broadly bearish outlook. This sentiment is spreading to spot markets: East China MEG spot prices have fallen to 3880-3920 yuan/ton, down about 120 yuan/ton from last week.

For downstream textile enterprises, especially those using polyester filament as primary raw material, lower input costs theoretically improve profit margins. However, the reality is more complex—weak end-demand is simultaneously pressuring grey fabric prices, with fabric buyers delaying orders to wait for clearer bottom signals. Major grey fabric markets in Shengze and Changxing have seen sluggish trading, with inventory days for standard varieties extending to 25-30 days.

The export sector also faces transmission pressure. Southeast Asia's textile industry recovery is accelerating, slowing demand growth for Chinese polyester fabrics. This round of raw material price declines may further depress export quotations, but exchange rate volatility and high freight costs still constrain actual transactions.

Practical Recommendations

For Buyers - Current raw material prices are at a temporary low but have not formed a clear bottom. Adopt a phased procurement strategy to avoid locking in large volumes at once, guarding against further declines. - Monitor MEG port inventory changes and polyester operating rates. If inventories fall for two consecutive weeks and operating rates recover above 88%, consider it a price stabilization signal and increase procurement. - For grey fabric, prioritize large weaving mills, which have better raw material inventory management and more transparent price transmission, offering greater negotiation room.

For Exporters - Base export quotes on the average futures price of the recent month rather than the lowest daily price to avoid loss-making orders. Use a 7-day moving average plus a 3-5% buffer as the minimum quote. - For long-term contracts, include a raw material price fluctuation adjustment clause with a trigger threshold (e.g., renegotiate when MEG moves more than 5%), hedging against dual risks of exchange rates and raw materials. - Monitor Southeast Asian markets: if this round of raw material declines exceeds cost reductions for local suppliers in Vietnam or Bangladesh, adjust pricing strategy to improve competitiveness and attract order flow back to China.