A polyester promotion on July 6 pushed polyester filament yarn sales to 153.8%, signaling a temporary restocking by downstream buyers. But the impressive figure masks a deep strategic standoff across the textile supply chain. International crude oil prices have retreated to pre-holiday levels, and the cost-side pressure is now hitting textile mills in the form of aggressive price cuts from customers.
The Pricing Game Between Upstream and Downstream
Customers, armed with crude oil price charts, demand equivalent reductions in fabric prices. The logic seems straightforward: if raw material costs fall, end products should follow. But textile mills calculate differently. During the raw material price rally, fabric prices rose far less than the cost increase, with mills absorbing most of the hike. Now that oil is down, polyester plants are not cutting list prices directly; instead, they offer limited-time 'promotions' with modest, stepwise reductions.
This asymmetric pricing flexibility stems from upstream profit structures. When polyester plant utilization drops to 70%, paper profit stands at about 500 yuan per ton. If they cut prices to boost volume, profit could shrink to just 100 yuan. More critically, current polyester yarn inventory was produced using high-cost raw materials, making its actual cost much higher than book value based on current prices. Selling at a discount means real losses, hence the preference for output cuts over price wars.
The Downstream Waiting Trap
Price cuts actually reinforce the wait-and-see attitude among weaving mills. The July 6 promotion saw sales-to-production ratio exceed 100%, but the previous promotion managed only 70%, indicating extremely fragile market confidence. When prices loosen, buyers' first instinct is that further declines are coming.
This is early July, traditionally the stocking season for fall/winter fabrics. But weaving mills are running at low utilization rates, with limited actual demand for raw materials. Unlike last year—when mills were forced to cut output due to inventory overhang from full-capacity production in the first half—this year the fear comes from violent raw material price swings that make any capacity expansion a risky bet.
The Second Half: A Capacity Gamble
Textile mills face a dilemma: skip restocking and risk missing a demand recovery, or build inventory and risk further price declines. Optimistically, low inventories meet recovering demand, fabric prices rebound, and stocks turn profitable. Pessimistically, prices stay low or fall further, and more production now means deeper losses later.
Over the past two months, many mills' capacity decisions have become a bet—gambling that the products they make will suddenly become hot in the second half. This 'gambler mentality' reflects the industry's lack of effective price discovery and risk hedging mechanisms.
Structural Contradictions in the Chain
- Polyester plants, having tasted the benefits of 'anti-involution,' resist returning to price wars, preferring output cuts to defend price floors.
- Weaving mills have weak cost pass-through ability: they absorb upstream hikes but must concede to downstream demands for cuts, squeezing margins from both sides.
- Information asymmetry leaves downstream buyers uncertain about price trends, causing delayed demand and further price pressure.