On June 29, another round of aggressive promotions by polyester plants only managed a 70% operating rate, which plunged to around 30% the next day. Promotions failed to move goods, and downstream weaving mills refused even the fleeting 'one-day' frenzy. Behind these numbers lies an unusually rational standoff across the polyester chain: cost pressure is easing sharply, but demand-side weakness is even more pronounced.
Oil 'Ceiling' Lowers, Reshaping Cost Logic
Morgan Stanley downgraded its oil price forecast for the second time in two weeks, shifting focus back to global oversupply. The bank expects spot Brent crude to average $75 per barrel in both Q3 and Q4. The key driver: the reopening of the Strait of Hormuz, with stranded tankers now departing the Persian Gulf, temporarily easing energy crisis fears.
For the polyester chain, this means a significantly lowered cost 'ceiling.' The extreme scenario of oil prices surging 50% within days after the Spring Festival is unlikely to recur, sharply reducing cost pressure on polyester filament yarn. However, polyester plants have limited room to cut margins—they procured raw materials at relatively high costs earlier, creating an inversion between inventory costs and current market prices.
Inventory Structure Divergence: Upstream Piles Up, Downstream Sits Empty
Current inventory distribution across the polyester chain shows a classic 'top-heavy, bottom-empty' pattern. POY, FDY, and DTY inventories stand at 30, 35.7, and 41.8 days respectively, still accumulating. These numbers mean rising warehousing costs and mounting cash flow pressure for polyester plants.
But downstream weaving mills are in a completely different situation. After two years of squeezed margins, their operational flexibility has been severely constrained. Without confirmed orders, they simply refuse to run machines—this has become the norm. Fabric price elasticity is extremely poor, with breakeven points for both inventory and fresh grey fabric still under negotiation. This hyper-rational approach leaves downstream buyers with minimal purchasing intent, restocking only in small quantities at low prices, avoiding any large-scale inventory buildup.
Supply-Demand Mismatch Probability Rises in H2
Ironically, the current low-inventory environment sets the stage for price elasticity later in the year. Because both upstream and downstream players have kept stocking cautious, and capacity utilization in H1 was relatively low, market inventories are lower than in the past two years. If demand recovers—triggered by a hit product like last Spring Festival's 'New Chinese Style' fabric—short-term supply-demand mismatches could quickly restore fabric price flexibility.
In the near term, the most likely catalyst is summer sun-protection apparel. But heavy rainfall across China this summer has delayed the arrival of high temperatures, pushing back demand for such products. If weather patterns shift in H2, this category could become the spark that ignites inventory digestion.
Polyester Plants' 'Prisoner's Dilemma'
Polyester plants face a classic prisoner's dilemma. If they continue offering discounts, they risk further squeezing already thin margins. If they hold prices, inventories keep piling up, potentially forcing deeper price cuts later.
It is possible that polyester yarn will experience sustained gradual declines or a more aggressive one-time clearance. But the key is whether downstream buying interest can be reignited. Based on the late-June promotion results, simple price cuts alone are unlikely to convince weaving mills. Only a fundamental improvement in end-order demand can truly restart the transmission mechanism along the chain.