International oil prices have surged again due to geopolitical tensions, with the Strait of Hormuz blockade delivering a fresh cost shock to the already fragile polyester supply chain. On July 8, the US Central Command announced strikes against Iran, followed by the death of an Iranian naval officer and the closure of the strait. Oil prices rose, with WTI crude briefly returning to $80/barrel and gaining nearly 3% on July 12.
For the chemical fiber industry, oil price fluctuations directly translate into cost pressures for polyester raw materials like PX, PTA, and MEG. Before the conflict, polyester filament yarn (PFY) was in a downtrend due to weak demand, with mills frequently discounting to clear inventory. But the event reversed the trend overnight.
Geopolitical Shockwaves Through the Supply Chain
On July 8, PFY prices rebounded sharply, with some polyester mills raising quotes twice in a single day. Downstream weaving mills rushed to restock, pushing the average PFY production-sales ratio to 361.9% on that day and 132.7% for the week. This panic buying reflects deep anxiety about further oil price hikes, even during a typically slack season.
On the supply side, polyester plant capacity utilization stands at only 74.6%, well below last year's level. Frequent maintenance shutdowns of PTA and PX units have tightened feedstock supply, supporting raw material prices. However, this "production cut narrative" is more about proactive supply management than demand-driven improvement. When oil rises and supply tightens, polyester mills gain pricing power, but the risk shifts downstream.
The Paradox of Panic Buying Amid Weak Demand
The textile industry faces a structural contradiction: raw material prices are pushed up by geopolitical events, but actual downstream orders have not increased. Weaving mills are caught between rising input costs and uncertain demand. If they run machines, they risk building finished inventory; if they halt, they lose potential margins. The first half of the year saw multiple price swings, disrupting mill operations.
This production-sales spike is more about panic buying than genuine demand recovery. Public industry data show no significant improvement in domestic or export orders for textile and apparel. Downstream buyers have limited tolerance for high-priced raw materials. Once the geopolitical premium fades, prices may correct, leaving high-inventory mills exposed to markdown losses.
Oil Price Outlook and Implications for the Fiber Industry
Historical US-Iran conflicts follow a pattern of intermittent clashes and negotiations. The current trigger is Iran's attempt to charge fees for ships passing through the Strait, which the US rejected. However, before the blockade, a large number of oil tankers had already left the strait, preventing an immediate supply crunch. Oil prices did not spike to $100/barrel as in previous crises. The market expects the blockade to be temporary, but the risk of escalation remains.
For textile firms, the short-term downtrend in PFY has been reversed, with prices likely to stay firm. But medium-term oil price sustainability depends on whether the conflict expands. If both sides return to negotiations, the geopolitical premium will quickly fade; if conflict escalates, more severe cost shocks could follow.