On July 6, a new round of promotions by polyester factories pushed the average production-to-sales ratio of sampled polyester filament yarn enterprises to 153.8%, prompting modest restocking by downstream users. However, this figure masks an intensifying tug-of-war along the supply chain: international crude oil prices have fallen from their peaks following US-Iran negotiations, and customers are demanding corresponding price cuts for fabrics, yet polyester factories have been far more conservative in their reductions than the market expected.
The Profit Calculus and Inventory Burden Upstream
Polyester factories are not truly cutting prices; they are offering limited, phased promotions. The rationale is a careful profit calculation: current operating rates hover around 70%, yielding a margin of roughly RMB 500 per ton. If they were to cut prices to boost volume, margins could collapse to just RMB 100 per ton. More critically, existing inventory was produced using higher-cost raw materials, meaning rapid destocking would incur book losses.
Having tasted the benefits of production discipline through years of anti-price-war efforts, polyester mills now prefer to keep operating rates low and defend price floors rather than relapse into a spiral of 'sell more, lose more.' This strategy protects short-term profits but shifts all the pressure onto downstream weavers.
Downstream Hesitation and Capacity Stalemate
Weaving mills have a paradoxical response to polyester price cuts. Once a promotion is announced, the market anticipates further declines, reinforcing a wait-and-see attitude. The previous promotion achieved only a 70% sales ratio; this time, the rebound to 153.8% is more a correction after deep discounts than a sign of genuine demand recovery.
The current period is the traditional off-season, with limited order books. In previous years, mill shutdowns occurred after overproduction led to inventory gluts. This year is different: volatile raw material costs have made mills afraid to ramp up production. They face pressure from customers demanding lower fabric prices, yet they cannot fully pass on the polyester factories' modest price concessions. The fear is that any goods produced now could become loss-making inventory if the autumn season disappoints.
Q3 Decision-Making: Betting on Recovery or Playing Safe?
The window for stocking autumn/winter fabrics is about to open, but confidence is fragile. In an optimistic scenario, demand recovery combined with low inventory could trigger a temporary rebound in fabric prices, benefiting those who built stocks early. In a pessimistic scenario, prices stay flat or fall further, and current production becomes a liability.
Capacity decisions over the next two months are thus a gamble on whether a mill's specific product types will suddenly gain traction in the second half. This uncertainty is dampening operational efficiency across the entire chain.