On July 6, a new round of polyester factory promotions pushed the sales-to-production ratio of polyester filament yarn to 153.8%, with downstream users making moderate replenishments and some local markets showing signs of recovery. However, behind these seemingly optimistic figures lies a difficult balancing act for textile mills between production cuts and stockpiling.
Cost Transmission Mismatch: Upstream Conservative on Price Cuts, Downstream Deepens Wait-and-See
International oil prices fell from highs to pre-Spring Festival levels due to US-Iran talks. As the barometer of the polyester chain, weaker oil prices should normally drive downstream prices down. Yet polyester factories chose limited-time promotions over direct price cuts, with each reduction modest. This strategy is profit-driven: at 70% capacity utilization, profit can reach 500 yuan per ton; if prices are cut to boost volume, profit may plummet to 100 yuan per ton, especially since current inventory uses high-cost raw materials. Polyester factories have learned from recent 'anti-involution' efforts and prefer to control output rather than return to the 'sell more, lose more' price war.
For weaving mills, this conservative pricing reinforces wait-and-see behavior. After a promotion, the immediate reaction is 'prices may fall further,' so they hold out for lower levels. This promotion achieved over 100% sales ratio, but the previous one only reached 70%. Market confidence is fragile. Clients demand 'proportional price cuts' on fabrics after oil drops, but textile mills already absorbed most of the raw material cost increases earlier, leaving razor-thin margins.
Traditional Stocking Season Missed: Weaving Mills Scarred by Cost Volatility
July is normally the time to stock up for H2 autumn/winter fabrics, but this year weaving mill operating rates are low, limiting actual demand for raw materials. Unlike last year—when shutdowns stemmed from overproduction and inventory buildup—this year companies are spooked by violent raw material price swings.
Cost fluctuations make mills reluctant to ramp up production. If they stockpile now and fabric prices stay flat or fall in H2, more production means bigger losses. If they cut output, they may miss a demand recovery. This dilemma turns production decisions over the next two months into a gamble: betting whether their products will suddenly become hot in H2.
H2 Outlook: Both Optimistic and Pessimistic Scenarios
The market is in its slowest season, with orders scarce. Optimistic scenario: H2 demand recovers, low inventories trigger a short-term fabric price rebound, turning existing stock into a hot commodity. Pessimistic scenario: fabric prices stay low or fall, making current production a loss.
Upstream polyester factories are unlikely to abandon their margin-defense strategy soon, meaning polyester yarn prices won't fall sharply. But downstream demand recovery requires orders and time. The standoff may persist into Q3. Companies should closely monitor terminal apparel orders, oil price trends, and polyester plant maintenance schedules to adjust production dynamically.