Renewed tensions in the Strait of Hormuz have sent shockwaves through China's polyester industry, triggering a sharp rally this week. On July 8, after U.S. forces launched strikes on Iran, international oil prices surged, with WTI crude briefly returning to the $80 per barrel range, followed by another near-3% gain on July 12. This geopolitical turmoil quickly transmitted to the chemical fiber market: previously declining polyester filament yarn prices rebounded sharply, with some polyester factories raising prices twice in a single day, completely reversing the earlier downtrend.
Panic Buying Drives Sales Surge
Downstream textile mills reacted swiftly. On July 8, the average sales-to-production ratio for polyester filament yarn soared to 361.9%, with the weekly average reaching 132.7%. Behind these numbers lies panic fueled by memories of the sharp raw material price spike earlier this year. With most mills holding low inventory and oil prices potentially heading toward $100 per barrel, stockpiling has become the most direct hedge. However, industry data suggests this buying is more sentiment-driven than demand-driven—orders remain scarce during the off-season, and weaving mills are reluctant to ramp up production.
Supply-Side Constraints Underpin Rally
The polyester side’s rebound has some fundamental support. Current polyester plant utilization stands at just 74.6%, well below last year’s levels. Upstream, PTA and PX plants are undergoing frequent maintenance, tightening supply and providing a floor for raw material costs. From a chain perspective, rising crude oil prices pass through PX to PTA to polyester, significantly lifting cost bases. However, whether this cost-push rally can sustain depends on downstream absorption capacity.
Weaving Mills Caught in a Dilemma
For weaving mills, the current market environment presents a classic dilemma. On one hand, raw material prices are rising, and delaying procurement could mean even higher costs later. On the other hand, weak off-season orders make production for inventory risky. The volatile raw material prices in the first half of the year have already exhausted many mills, forcing them to adopt a wait-and-see approach. End-market data from apparel and home textiles shows no clear signs of recovery, suggesting that downstream restocking demand may not be sustainable.
Geopolitics Remain the Wildcard
The Strait of Hormuz blockade is not unprecedented. A previous memorandum of understanding between the U.S. and Iran was quickly torn up. The current conflict was sparked by Iran’s attempt to charge tolls for passage through the strait, prompting U.S. strikes. Notably, a large number of oil tankers had already left the strait before the blockade, easing global supply concerns and preventing oil from spiking to $100 immediately. Markets generally expect the blockade to be short-lived, but the key variable is whether the conflict escalates. Further escalation could push oil prices higher, while de-escalation could lead to a retreat.
Implications for Procurement and Trade
In the near term, the downtrend in polyester filament yarn has been broken, and prices are likely to stay firm. However, this does not mean the industry has entered an upward cycle—panic-driven sales surges are rarely sustainable, and prices could correct if geopolitical tensions ease.