On July 6, polyester factories launched a new round of promotions, with end-of-day data showing average sales-to-production ratio for polyester filament yarn sample enterprises surging to 153.8%, as downstream users made moderate replenishments, signaling a localized market recovery. Yet beneath this apparent activity lies a complex reality: international crude oil prices have weakened since the US-Iran negotiations, falling back to pre-Spring Festival levels, while customers aggressively demand price cuts, leaving textile firms squeezed between falling costs, weak orders, and thin margins.
Distorted Cost Transmission
Crude oil, as the 'barometer' of the polyester chain, should normally drive polyester products lower. However, polyester plants have not directly cut list prices but instead release limited reductions through promotions, each time cautiously avoiding a one-step drop. This reflects a clear profit-first strategy: prefer operating at 70% capacity with a per-ton profit of 500 yuan rather than cutting prices to boost volume, which might yield only 100 yuan in paper profit. Critically, current inventory polyester filaments use high-cost raw materials, making their actual cost higher than book value, so they must be sold slowly—rushing would deepen losses.
For weaving mills, the upstream's restrained price cuts offer little allure. Once polyester prices soften, downstream players strengthen their expectation of further declines and continue to wait. The previous promotion saw only 70% sales-to-production ratio, confirming this mentality. A clear mismatch exists: upstream uses promotions to test demand elasticity, while downstream waits for a more definitive bottom.
Weavers' Dilemma
Traditionally, July is the season for stocking autumn/winter fabrics, but this year capacity shutdowns are more severe than last. Last year's stoppages were passive, driven by inventory buildup from overproduction in H1; this year, the cost volatility has instilled fear, leading weavers to adopt conservative strategies. Even with polyester promotions, actual purchases are constrained by limited downstream orders—current apparel brand orders are cautious, weaving mill operating rates are low, and rigid demand for raw materials is limited.
This 'buy on rising, not falling' wait-and-see attitude diminishes the marginal effect of polyester promotions. While the latest promotion broke 100% sales ratio, it reflects phase-based restocking rather than a trend reversal. Weavers face a real dilemma: increase production now, betting on a sudden H2 demand recovery that turns inventory into gold; or cut output conservatively, risking missing order windows. Both options carry significant gambling elements.
Key H2 Variables
The market is in its weakest period, with few orders, but textile firms cannot fully abandon H2 stocking. In an optimistic scenario, if end-demand recovers in H2, low inventories could trigger a short-term price rebound, making stored goods valuable. In a pessimistic scenario, fabric prices stay low or fall further, meaning more production now leads to greater losses later.
Two factors will determine the outcome: first, the trajectory of international crude oil, which directly impacts polyester cost centers; second, the pace of end-apparel consumption recovery, especially whether US and European restocking demand materializes in Q4. From an industrial transmission perspective, polyester plants' profit-first strategy will not change in the short term, limiting upstream price cuts. Weavers' wait-and-see stance is unlikely to shift unless they see two consecutive weeks of sales-to-production ratios above 100%.