Crude oil prices have fallen back to levels seen before the latest round of Middle East tensions, but polyester filament yarn prices have yet to follow suit. On June 24, U.S. WTI crude oil briefly dipped below $70 per barrel on the intraday market. Although a modest rebound occurred the following day due to renewed geopolitical volatility, by June 26 oil was once again hovering around the $70 mark. Meanwhile, polyester filament yarn prices remain nearly 1,000 yuan per tonne higher than before the crisis. This price gap is tearing apart the pricing logic of the entire polyester chain.
Crude Retreats, but Yarn Holds High
On the futures side, prices for PTA and monoethylene glycol (MEG) have essentially retraced all their gains from the pre-crisis rally, meaning the cost support for polyester yarn has been substantially weakened. Yet actual ex-factory prices for polyester yarn have not fallen in tandem. Based on current raw material costs and processing fees, the cash margin for polyester yarn is at a multi-year high. In theory, polyester plants are enjoying considerable profitability on paper, but this 'paper profit' has not translated into lower market transaction prices.
The inventory structure of polyester plants explains this paradox. As of June 24, POY plant inventory stood at about 30 days, FDY at about 35.7 days, and DTY as high as 41.8 days. A large portion of this inventory was produced under the previous high-cost raw material regime. If mills were to slash prices sharply now, they would convert paper losses into real losses. Therefore, despite ample cash margins, polyester plants prefer a strategy of 'slow price cuts, slow sales' – buying time to avoid an immediate profit hit.
Weavers’ 'Buy-Only-When-Necessary' Stance and the Stalemate
The response from downstream weaving mills is entirely different. Faced with a nearly 1,000-yuan gap between yarn prices and raw material costs, weavers widely expect further price declines. Unless they have urgent delivery orders, mills will almost never purchase yarn simply to replenish inventory. A one-month delay in buying could mean a difference of hundreds or even over a thousand yuan per tonne in raw material costs, while the finished fabric would be identical. Consequently, the market has entered a classic 'buy-only-when-necessary' phase, with weavers primarily consuming existing inventory and purchasing intentions dropping to near zero.
On June 24, some polyester plants began to modestly reduce yarn prices, by 50-150 yuan per tonne. But for weavers, such cuts are far from their target level. The disagreement over pricing between upstream and downstream has turned into an endurance contest: polyester plants refuse to sell at a loss, and weavers refuse to buy at high prices.
Imbalance and Abnormal Weather Add Pressure
The root cause of the chain's divergence is a fundamental supply-demand imbalance, with weak demand being the dominant factor. On the supply side, even though the operating rate of direct-spun polyester filament yarn capacity is only 73.81% – a three-year low – the contraction in demand has been even more severe. Weak domestic demand is the main pain point: summer is normally the peak season for sun-protection apparel, but unseasonably cool weather this year has persisted into late June, delaying the launch of related fabric orders.
However, a glimmer of hope appears on the export front. With the full reopening of shipping lanes through the Strait of Hormuz, global crude oil and commodity trade flows are gradually normalizing, and several overseas economies are accelerating their recovery. This trend is expected to boost international demand for textile products, providing some support for China's textile export market. Incremental export orders may partially offset the pressure from weak domestic demand and help alleviate downward risks in the polyester yarn market.
Short-Term Stalemate to Persist; Watch Inventory Inflection
Overall, the 'weak supply-demand, wide price spread' pattern in the polyester chain is unlikely to break in the near term. Polyester plants, despite healthy cash margins, are constrained by high-cost inventory; weavers, anticipating further price declines, continue to wait on the sidelines. The tug-of-war between upstream and downstream will dominate market direction in the coming weeks.
For market participants, two variables deserve close attention: first, changes in polyester plant inventory – if inventory continues to accumulate, plants may be forced to deepen production cuts or accelerate price reductions to destock; second, the actual landing of overseas orders – if export recovery outpaces expectations, it will effectively absorb polyester yarn inventory and provide price support.