Crude Oil Plunges Then Rebounds, Adding Pressure on Textile Fiber Costs

International crude oil markets experienced a sharp sell-off on July 9, with WTI crude plunging as much as 3.00% to an intraday low of $72.27 per barrel. Brent crude also fell, dropping 2.48% at one point and breaking below $77 per barrel. Both benchmarks later rebounded approximately $0.6, recovering to $74.51 and $79.12 respectively, but still ended the session significantly lower.

Cost Transmission Mechanism

Crude oil is the most upstream raw material for the polyester industry chain, and its price fluctuations quickly transmit to intermediate products such as PTA, ethylene glycol, and polyester filament yarn. PTA production costs are approximately 60% influenced by PX prices, which in turn rely heavily on naphtha and crude oil. Therefore, a single-day decline of over 3% in crude oil implies that cost support for PTA and polyester products is weakening.

Historically, when WTI crude rapidly falls in the $72-74 range, polyester raw material prices tend to adjust within 1-2 trading days. The July 9 intraday low of $72.27 approaches the year's bottom range. If oil prices remain weak, polyester yarn prices face catch-down risk, which could quickly erode inventory book values for traders holding large stocks.

Impact on Weaving and Dyeing Mills

Downstream weaving mills typically adopt a wait-and-see approach during raw material price declines, delaying purchases to seek lower prices. This 'buy on rising, not falling' mentality further pressures polyester mills' sales-to-production ratios. Feedback from major weaving clusters in Shengze, Changxing, and Xiaoshan indicates that grey fabric orders were already weak. If raw material costs continue to fall, grey fabric prices will also come under pressure.

Dyeing and printing sectors face similar headwinds. Although dyes and auxiliaries are not directly linked to crude oil, overall chemical prices are significantly influenced by oil. Sustained weakness in crude could lower chemical procurement costs for dyeing mills, but only if downstream garment orders remain stable. The current global textile and apparel demand recovery adds uncertainty to profit margins amid cost volatility.

Dual Challenges for Foreign Trade Companies

For textile exporters, the cost benefit from falling crude may be partially offset by exchange rate fluctuations. The renminbi has shown increased two-way volatility recently. If crude oil declines trigger shifts in global financial market risk appetite, exchange rate uncertainty will complicate order pricing. Additionally, overseas clients often demand price reductions when raw material costs drop, squeezing exporters' margins.

From a macro perspective, lower crude oil prices help reduce import costs for chemical fiber raw materials but also reflect weak global economic demand. Exporters focusing on polyester fabrics and garments should closely monitor oil price trends and flexibly adjust procurement and pricing strategies.

Practical Recommendations

For Procurement Managers - Monitor PTA and ethylene glycol futures basis changes; if futures remain in backwardation, consider point-price procurement to lock in lower costs. - Extend raw material inventory cycles to 7-10 days to avoid chasing prices during oil rebounds, while controlling single-purchase volumes to limit devaluation risk. - Negotiate short-term price protection agreements or floating price clauses with polyester mills to partially transfer oil price risk upstream.

For Foreign Trade Companies - Include raw material price fluctuation clauses in quotations, allowing renegotiation if crude oil fluctuates more than 5% in a single week, protecting margins from cost changes. - Use forward exchange contracts to hedge against exchange rate risks triggered by oil price volatility. - Prioritize long-term and large orders, and procure raw materials in batches to ensure cost and selling price alignment.