On July 6, a polyester factory promotion pushed the average sales-to-production ratio of polyester filament sample enterprises to 153.8%, with downstream users moderately replenishing, signaling a tentative recovery in localized markets. However, behind this data lies a complex scenario where international oil prices have fallen back to pre-Spring Festival levels, prompting downstream clients to aggressively demand fabric price cuts. For many textile firms, current production decisions have become a gamble between inventory and margins.
Upstream Cuts Output to Protect Margins, Downstream Waits for Lower Prices
International oil prices, a key barometer for the polyester chain, directly influence downstream costs. Clients cite falling crude prices to demand synchronous reductions in fabric prices. Yet textile mills face a dilemma: during the raw material price surge, fabric prices increased but far less than cost rises, with mills absorbing most of the pressure. Now, polyester plants are not directly cutting list prices but offering limited-time promotions with modest reductions each time.
Polyester plants' conservative approach stems from profit considerations. At a 70% operating rate, maintaining current prices ensures certain margins; cutting prices to boost sales would drastically shrink profits, and high-cost inventory cannot be covered by current prices. More fundamentally, after years of price wars, the industry has tasted the benefits of 'anti-involution,' preferring to reduce output to defend price floors rather than return to a 'sell more, lose more' cycle.
Weaving enterprises show muted response. Lower polyester prices have not spurred large-scale buying but intensified wait-and-see attitudes, with expectations of further declines. The latest promotion saw sales-to-production ratio exceed 100%, but an earlier one only reached 70%, reflecting fragile market confidence. With low operating rates, actual demand for raw materials is limited, and even promotions cannot trigger significant restocking.
Traditional Restocking Season Meets Confidence Crisis
July typically marks the start of preparation for second-half autumn/winter fabrics. But this year differs: last year's output cuts were due to inventory gluts from full-capacity production; this year, fear of cost volatility dominates. Frequent sharp swings in raw material prices make firms hesitant to add capacity or inventory, fearing heavy losses if prices continue to fall.
The resulting tug-of-war sees upstream polyester plants preferring reduced loads over significant price cuts, while downstream weavers wait for lower levels. This deadlock reduces market liquidity, squeezing inventory pressure to both ends. Notably, current polyester plant inventories consist largely of high-cost raw materials, meaning even if demand recovers, this stock will take time to clear and won't immediately become low-cost supply.
Second-Half Outlook: Two Scenarios
The market is in its traditional low season, with order volumes generally thin. Textile firms face a stark choice: cut output to avoid risk but risk missing a demand recovery, or build inventory but bear potential price declines.
In an optimistic scenario, second-half demand improves, supply tightens amid low inventories, fabric prices rebound temporarily, and current stock becomes a premium asset. In a pessimistic scenario, prices stay flat or fall further, with more production now leading to deeper losses later. Capacity decisions over the next two months essentially bet on whether a firm's products will gain market traction in the second half.