Crude oil prices have fallen back to levels seen before the escalation of the Middle East crisis, yet polyester filament yarn prices remain nearly 1,000 yuan per ton higher than at that baseline. On June 24, WTI crude briefly dipped below $70/barrel. Although a minor rebound occurred on June 25 due to geopolitical news, prices were again near $70 on June 26. Meanwhile, polyester filament yarn quotes have not declined in tandem, creating a clear price gap along the supply chain.
The Cash Flow Paradox for Polyester Mills
From a futures perspective, PTA and MEG prices have largely given back all gains driven by the earlier oil rally. In theory, the cost support for polyester filament has weakened significantly. However, industry data shows that the cash margin for polyester filament is currently at a multi-year high. This apparent contradiction stems from the cost structure of mills' inventories.
Current inventory levels stand at approximately 30 days for POY, 35.7 days for FDY, and 41.8 days for DTY. Most of these inventories were produced when oil and feedstock prices were high, meaning their book costs are far above current levels. If mills were to cut prices sharply to match the decline in crude and raw materials, they would convert paper losses into real losses. Hence, despite healthy paper margins, mills lack the incentive to reduce prices aggressively.
At the same time, capacity utilization remains low. Data shows that on June 24, the operating rate for domestic direct-spun polyester filament was 73.81%, up just 0.29% from the prior week. Over a longer timeframe, this is a three-year low. Low operating rates mean mills face manageable shipment pressure, giving them room to adopt a 'slow price cuts, slow sales' strategy.
Weavers Adopt 'No Purchase Unless Necessary'
In sharp contrast to mills' caution, downstream weavers' purchasing sentiment has hit rock bottom. For weavers, the high cash margin on polyester filament implies significant room for future price declines. If they are producing for routine inventory rather than fulfilling urgent orders, delaying raw material purchases by a month could save hundreds or even thousands of yuan per ton, while the final product sells at the same price.
This expectation has led to a 'no purchase unless necessary' mindset. Weavers only buy when they have confirmed orders, and voluntary stockpiling has virtually ceased. This demand-side contraction further pressures mill inventories, but has not yet forced mills to slash prices. A fragile equilibrium now characterizes the upstream-downstream dynamic.
Weak Demand and Ample Supply Are the Core Issues
The fundamental driver of this price divergence is not geopolitics but supply-demand fundamentals. Weak domestic demand is the central pain point in China's consumer market. For instance, summer sun-protection apparel, which typically peaks in June, has seen sluggish demand due to unusually cool weather, directly reducing demand for polyester filament.
On the supply side, despite voluntary capacity cuts, the absolute output from a massive installed base remains substantial. The imbalance between ample supply and weak demand is unlikely to reverse in the near term, which is why polyester filament prices lack upward elasticity.
Can Export Orders Be a Game Changer?
Not all signals are negative. With the full reopening of shipping lanes through the Strait of Hormuz, global crude and commodity trade flows are normalizing. Faster economic recovery in several overseas economies could boost international textile demand. For Chinese textile exporters, this means incremental external orders may partially offset domestic weakness.
If export orders continue to improve, they could help digest mill inventories and ease downward pressure on the supply chain. However, this transmission takes time and depends on the actual strength of overseas end-consumer demand. In the short term, the pattern of weak supply-demand and high margins is likely to persist.