After four consecutive days of gains, ethylene glycol (EG) futures opened higher but closed at 4,131 yuan per ton, with gains narrowing to 0.66%. This signals a new tug-of-war between bulls and bears around the 4,130 yuan level. Earlier, geopolitical events pushed crude oil prices to rebound sharply from a recent low, lifting the entire chemical sector. EG, as a key raw material in the polyester chain, also completed a technical rebound. However, today's performance was notably weaker than other polyester products like PTA, prompting the market to reassess the sustainability of its fundamental support.
Short-term Cost Support from Geopolitics
The U.S. recently announced the cancellation of sanctions waivers on Iranian oil exports, and the Strait of Hormuz has not fully resumed normal transit. This raised the risk premium on crude oil supply, directly impacting EG's cost side and triggering a technical rebound after a deep sell-off. Notably, the current spot price in East China has risen to 4,250-4,350 yuan per ton, showing a clear premium over futures, indicating that the spot market has more fully priced in near-term supply tightness.
But geopolitical factors are highly uncertain. Once the Strait normalizes or crude sentiment cools, EG will lose this extra cost support and revert to its own supply-demand logic. Today's narrowing gains suggest the market is already pricing in this expectation.
Supply-Demand: Inventory Drawdown vs. Operating Rates
On the supply side, July sees a mix of plant maintenance and restarts, with overall operating rates expected to remain stable. Imports have not yet recovered significantly in early July due to lingering Strait disruptions, so port destocking is likely to continue through the month. This provides a floor for prices and underpinned the earlier rebound.
However, destocking does not imply a fundamentally tight market. The polyester industry's composite operating rate is only 80%, a multi-year low for the period. Downstream yarn and fabric mills also hold near-three-year low raw material inventories, reflecting cautious expectations and weak restocking appetite. The destocking is more a result of upstream supply contraction than demand pull.
Demand: Seasonal Restocking as a Double-Edged Sword
August marks the traditional start of autumn-winter order season for the textile market. As downstream mills enter restocking cycles, polyester operating rates will likely rise seasonally. Historical patterns suggest this restocking can absorb marginal supply increases and prevent a rapid shift to a loose balance.
However, overseas textile demand remains weak overall, offering no extra boost. The domestic restocking is more necessity-driven than expectation-driven. Once completed, EG demand will face renewed pressure. In short, seasonal demand can only provide a temporary floor, not a sustained uptrend.