A single strand of polyester filament yarn is pushing upstream and downstream players into opposite corners.
According to publicly available industry data, the average sales-to-production ratio of sample PFY enterprises on July 2 was only 31.7%, down 4.1 percentage points from the previous trading day. More strikingly, two enterprises recorded zero sales, while the vast majority fell within the 20%-35% range. This means that for every 100 metric tons of yarn produced that day, nearly 70 tons went directly into inventory.
The Paradox of High Cash Flow and Sluggish Sales
Current cash flow for PFY remains relatively high, which underpins polyester mills' pricing resolve. Yet signals from downstream tell a different story: weaving mills report insufficient end-user orders, rising grey fabric inventories, and cash flows approaching breakeven or even loss.
This structural mismatch—where upstream profits while downstream loses—has led to a sharp contraction in market transactions. Buyers are not chasing price increases; instead, they are proactively reducing purchases, with some mills opting to halt production and wait. The production-sales ratio is the most direct indicator: when a mill's ratio stays below 40% for consecutive days, it is effectively building inventory with real money.
A Game of 'Who Blinks First'
Historically, a PFY production-sales ratio below 40% for more than a week often signals an impending price correction. But this time, upstream polyester mills face more than just downstream pressure.
Feedstock prices for PTA and MEG remain supported by volatile international crude oil prices. Combined with output cuts by major producers to regulate supply, the incentive for proactive price reductions is limited. This creates a classic 'prisoner's dilemma': upstream refuses to cut prices, downstream refuses to buy, and both sides bet that the other will blink first.
For the weaving sector, this stalemate is more damaging. Small and medium-sized enterprises with tight cash flows see their order-taking capacity further eroded once raw material procurement is disrupted, triggering a negative spiral of shrinking orders, reduced purchases, rising inventories, and price pressure.
Can Export Orders Break the Deadlock?
A potential variable is export orders. Restocking demand from some Southeast Asian and South Asian markets picked up in late Q2, but it takes time to transmit to domestic weaving mills. More critically, RMB exchange rate volatility and high freight costs are eating into already thin export margins.
If export orders materialize substantially in Q3, weaving mill operating rates could recover, helping to repair PFY production-sales ratios. However, if overseas demand falls short, the current high inventory pressure will force upstream to make price concessions before the end of July.
Ripple Effects in Industrial Clusters
Geographically, the production-sales ratio data covers major polyester factories in Jiangsu and Zhejiang, including clusters like Xiaoshan-Shaoxing, Shengze, and Changxing. These areas are also dense with weaving mills, meaning price signals travel quickly along the short physical distance between upstream and downstream.
Once weaving mills in a given cluster initiate concentrated production cuts, local polyester factories immediately face increased shipment pressure. Some factories have already begun offering discounts or 'negotiable for large volumes,' but this has not yet become a widespread trend.