International crude oil has fallen back to levels seen before the escalation of the Middle East crisis, but polyester filament yarn has not followed suit. On June 24, WTI crude briefly dipped below $70 per barrel, and by June 26 it hovered around $70 again, fully erasing the conflict premium. Yet polyester filament prices remain nearly 1,000 yuan per ton higher than before the rally. This price gap is tearing the upstream-downstream balance apart.
The Cash Flow Paradox Behind the Price Gap
From a cost perspective, PTA and ethylene glycol futures have largely returned to pre-crisis levels, suggesting that the raw material cost for polyester filament has dropped significantly. However, the reality for polyester plants is far more complex. Current inventory levels stand at about 30 days for POY, 35.7 days for FDY, and 41.8 days for DTY—all produced during the high-cost period. If polyester plants were to cut prices in line with crude oil, they would face not just profit erosion but a shift from paper gains to real losses.
Consequently, despite the seemingly attractive cash flow, polyester plants are opting for a 'slow decline, slow sale' strategy. The operating rate remains at 73.81%, a three-year low, providing a buffer for inventory control and giving them little urgency to lower prices. For weavers, the high cash flow signals significant future downside risk. Unless they have urgent orders to fulfill, they adopt a 'no-buy unless necessary' stance, waiting for prices to drop further.
Weak Demand as the Root Cause
This upstream-downstream standoff is rooted in supply-demand imbalance. Domestic demand remains the core pain point of China's consumer market. Summer is normally the peak season for sun-protection fabrics, but unusually cool weather has persisted through late June, delaying the seasonal demand surge. Weavers are reluctant to produce for inventory, further suppressing their procurement of polyester filament.
On the supply side, despite the low operating rate, 73.81% capacity utilization still means ample supply. In a weak demand environment, any cost-side benefit fails to translate into price support, intensifying the tug-of-war along the chain.
Exports as the Wild Card
The market is not without bright spots. The Strait of Hormuz shipping channel has fully reopened, restoring global crude and commodity trade flows. Several overseas economies are accelerating their recovery, which is expected to boost international textile consumption. For Chinese textile exporters, this could bring incremental orders, partially offsetting the domestic weakness.
A recovery in export orders could lift weavers' operating rates and drive genuine demand for polyester filament. This may be the only external variable capable of breaking the current deadlock. However, the transmission mechanism takes time, and the weak supply-demand, high price-gap pattern is likely to persist in the short term.