A promotional campaign by polyester factories in early July pushed the average sales-to-production ratio of DTY (draw textured yarn) to 153.8% among sample enterprises, seemingly signaling a market turnaround. But beneath this figure lies the pressure from downstream customers demanding fabric price cuts after international oil prices fell from their highs, and the dilemma facing weaving mills.
Broken cost transmission
Crude oil, as the source of the polyester chain, should normally transmit its price changes evenly down the chain. However, in reality, upstream polyester factories absorb cost fluctuations through 'promotions' rather than direct price cuts, with each reduction limited in scope and slow in pace. This is not a simple pricing strategy but a calculated decision: with capacity utilization at 70%, profit per ton is still 500 yuan; if they cut prices to boost volume, profit could drop to just 100 yuan, and inventory yarn was produced with high-cost raw materials, making actual costs much higher than book value—a price cut would mean selling at a loss.
Polyester factories dare to hold prices because they have learned from years of destructive price wars. The industry has tasted the benefits of stable margins from 'anti-involution' efforts, and now they would rather sacrifice capacity than return to a 'sell more, lose more' cycle. While this strategy protects short-term profits, it widens the trust gap between upstream and downstream players.
The waiting trap for weavers
For weaving mills, a drop in polyester yarn prices has become a 'reverse signal' for purchasing. Data shows that the previous promotion achieved only a 70% sales-to-production ratio, and this month's surge to 153.8% is more a release of pent-up demand than a trend reversal. Downstream capacity utilization remains low, actual demand for raw materials is limited, and any price softening only reinforces expectations of further declines.
This is traditionally the stocking season for autumn-winter fabrics in July, but weaving mills are generally stuck in a 'dare not produce, dare not stock' stalemate. Unlike last year's production cuts due to inventory buildup, this year's shutdowns are driven by fear of cost volatility—raw material prices swing wildly, orders lack continuity, and any capacity increase risks becoming an inventory burden.
Two scenarios for H2
The market is in its quietest period for orders, but companies cannot afford to completely halt operations. The optimistic scenario: demand recovers in H2, combined with low inventory levels, fabric prices rebound in the short term, and inventory assets appreciate. The pessimistic scenario: fabric prices remain low or fall further, and the more produced now, the heavier the losses later.
For many weaving mills, production decisions for the next two months have become a gamble—betting on whether the products they make will suddenly become hot sellers in the second half. This gamble reflects the dual pressure of opaque supply chain information and demand uncertainty.