International crude oil prices have fallen back to pre-war levels after the US-Iran peace agreement, and the reopening of the Strait of Hormuz has caused a collapse in polyester raw material costs. However, this cost crash has not brought universal joy to the supply chain—upstream raw material suppliers, midstream filament yarn producers, and downstream weaving mills hold conflicting demands, escalating a three-way battle over volume, price, and profit.
Broken Cost Transmission: Filament Yarn Becomes a 'Price Dam'
According to industry data, major PX and PTA plant maintenance in July has significantly lowered upstream operating rates. The post-oil-crash cost decline should theoretically pass through quickly. Yet filament yarn prices have remained stubbornly high, with processing margins staying elevated.
Downstream weaving mills are reacting strongly. Before the oil price drop, they had long suffered from an inverted cost structure—high filament yarn prices versus stagnant fabric order prices, making immediate production unprofitable. Now that raw material costs have collapsed, yarn prices have not followed suit, and weavers view this as an unfair 'upstream feasts, downstream barely gets scraps' scenario. Consequently, they are collectively waiting for yarn prices to 'catch down' to reasonable levels before restocking.
Upstream Anxiety: Inventory Destocking Depends on Yarn Mills Lifting Rates
Upstream raw material producers are equally anxious. Although July maintenance tightens short-term supply, the medium-term outlook suggests that once strait shipping resumes and refinery maintenance ends after August, raw material shortages will ease. For PTA and PX makers, the immediate priority is to get polyester yarn mills to raise operating rates to absorb future raw material supply.
The upstream's core demand is for filament yarn mills to increase run rates. Only then can PTA demand recover, accelerating destocking and repairing the forward supply-demand balance. The most effective lever to boost yarn mill rates is a major sales promotion—if yarn prices drop sharply to stimulate sales, inventory pressure eases, yarn mills can then lift rates, and upstream destocking gains momentum.
Yarn Mills' 'Profit Fortress': Output Cuts as a Bargaining Chip
Midstream filament yarn producers have a different calculus. In past cycles, every time raw material prices fell, they would cut yarn prices to boost sales, only to see processing margins squeezed to nothing, becoming mere 'conveyor belts' for upstream. This time, they are determined to defend their hard-won profit floor.
Internal industry calculations show that at full capacity, profit per ton was 100 yuan; now at 70% capacity, profit per ton is 500 yuan—an attractive trade-off. More importantly, if they lower prices now, downstream buyers will only wait for further cuts ('If it drops today, it might drop more tomorrow'), and all previous output reduction efforts would be wasted.
This hardline stance has created a deadlock: yarn mills won't cut prices significantly, downstream won't buy, so sales remain low; low sales prevent inventory drawdown, so yarn mills cannot raise rates; and without higher yarn rates, upstream PTA sales remain sluggish, thwarting upstream destocking goals.
When Will the Deadlock Break? Key Signals and Transmission Paths
No party is willing to concede voluntarily, but the standoff cannot last indefinitely. Historical patterns suggest three potential triggers:
- **Yarn inventory hitting a critical threshold**: If output cuts fail to prevent stockpiling, yarn mills will be forced to discount, triggering a concentrated downstream restocking spree, temporarily boosting sales and allowing rates to rise, which benefits upstream.
- **Seasonal demand recovery**: As the traditional peak season approaches in August, if weavers secure new orders, they may be compelled to purchase even at current yarn prices, breaking the wait-and-see pattern.
- **Upstream further concessions**: If PTA and PX producers actively cut prices after maintenance ends, squeezing yarn processing margins, they may force yarn mills to adjust their strategy.
For buyers and foreign trade firms, monitoring weekly yarn inventory reports and PTA operating rates is crucial—these metrics often precede price inflection points.