Crude Oil Breaks Key Support, Adding Pressure on Textile Fiber Costs

International crude oil markets experienced a clear breakdown on July 2. WTI crude fell more than 2% during the day, closing at $67.20 per barrel. Brent crude also weakened, breaking below the $71 mark and hitting its lowest level since late February, with an intraday decline of 1%. This sell-off is not an isolated event but an acceleration of sustained pressure over recent weeks.

For the textile industry, oil prices are far more than just an energy cost. From PTA and MEG to polyester filament and staple fiber, the entire polyester chain’s pricing anchor is tied to crude. When crude drops over 2% in a single day, the cost support for upstream raw materials is rapidly eroded.

Cost Pass-Through Faces Resistance

Historically, every $10 per barrel drop in oil reduces the polyester chain’s cost center by approximately 600-800 yuan per ton. But this time, the transmission may be less smooth. Downstream weaving mills are generally facing weak order books, and end-brand apparel clients are cautious about restocking. This means even if PTA and polyester prices fall with oil, mills and traders may be reluctant to increase purchases.

A more pressing concern is inventory risk. For mills holding high-cost raw material stocks, a sharp oil decline can quickly widen mark-to-market losses. Those who replenished stocks in late June are now seeing a significant gap between their procurement cost and current market prices.

Regional Divergence in Industrial Clusters

Across major textile clusters like Keqiao and Shengze, chemical fiber traders have started lowering quotes. According to industry data, on July 2, polyester POY prices in the Jiangsu-Zhejiang region dropped 100-150 yuan per ton compared to the previous day, while FDY and DTY fell 50-100 yuan per ton. Some polyester plants have opted for production cuts or maintenance to cope with margin compression, and industry operating rates may decline further.

However, regional divergence has emerged. Nantong’s home textile cluster, which is export-oriented and deals in U.S. dollar-denominated orders with longer delivery cycles, is relatively insulated from the immediate oil shock. In contrast, domestic-focused weaving mills serving price-sensitive end customers have narrower room for price negotiation, making margin compression more direct.

Short-Term Outlook and Procurement Window

Market sentiment on oil remains bearish. Many institutions believe WTI could test the $65 per barrel support level amid weakening macro demand and intensifying supply-side uncertainties. If this scenario materializes, polyester feedstock prices will have further room to decline.

For buyers, two key time points require close attention: the mid-July monthly settlement prices from polyester plants, and the early-August launch of autumn/winter orders. If oil stabilizes by then and order volumes improve, a short-term restocking window may open. Conversely, if oil continues to slide and demand remains weak, mills should minimize raw material inventory cycles to avoid write-down losses.

Practical Recommendations

For Procurement Teams - Shorten raw material purchasing cycles from 15-20 days to 7-10 days to cope with rapid price fluctuations - Monitor the futures basis for PTA and MEG; if near-month contracts show deep backwardation, consider point pricing to lock in costs - Negotiate floating pricing mechanisms with chemical fiber suppliers to share oil price risk across the supply chain

For Export Enterprises - For fixed-price orders, lock in exchange rates through forward contracts as soon as possible to prevent currency fluctuations from eroding cost advantages - Include price adjustment clauses in quotations (e.g., “renegotiate if crude fluctuates beyond X%”) to avoid margin erosion on long-term orders - Use the oil price downturn as a signal to overseas clients that raw material costs are falling, strengthening your negotiating position for new orders