International oil prices collectively declined in mid-July, with WTI crude breaking below the $79/barrel mark, falling 1% intraday to a low of $78.92. Brent crude also weakened, slipping below $84 with a daily decline of 0.81%. For the textile industry, this is not just a fluctuation in energy prices but a signal that the chemical fiber cost chain may be opening a downward channel.
Cost Transmission: The Chain from Crude to Chemical Fibers is Loosening
Crude oil is the starting point of the polyester industry chain. The raw materials for PTA (Purified Terephthalic Acid) and MEG (Monoethylene Glycol) are directly or indirectly derived from naphtha cracking. When WTI and Brent fall simultaneously, naphtha prices typically follow within 1-2 weeks, subsequently lowering production costs for PTA and polyester filament yarn. Based on current declines, if crude maintains this price level, the theoretical cost of polyester POY (Partially Oriented Yarn) could drop by approximately 200-300 RMB/ton compared to early July. For polyester plants with annual capacities of hundreds of thousands of tons, this translates to tens of millions in cost savings.
However, downstream textile enterprises will not immediately enjoy low-price benefits. There is a time lag in industry chain transmission: polyester plants typically hold 1-2 weeks of raw material inventory and will still absorb PTA produced from earlier high-priced crude in the short term. Therefore, adjustments in polyester quotations often lag behind crude by 2-3 weeks. The current moment is a critical window for buyers to reassess contract prices – if crude remains low, Q3 polyester filament yarn quotations are likely to soften.
Procurement Window: Inventory Strategies Need Dynamic Adjustment
The sharp drop in crude oil most directly impacts textile enterprises' procurement decision-making pace. Over the past two months, with oil prices remaining above $80, chemical fiber plants had strong price support intentions, forcing downstream weaving mills to accept higher raw material costs, compressing profit margins. Now that oil prices have fallen, buyer bargaining power is recovering. However, caution is warranted: crude market sentiment is highly volatile, and a single-day decline may not form a trend. On July 16, WTI rebounded to $79.5 during trading, indicating ongoing long-short battles.
For fabric and garment companies, the most rational approach now is not to immediately restock heavily but to adopt a phased locking strategy. Lock in essential volumes for the next two weeks at current prices, and wait for crude to confirm a bottom before purchasing remaining needs. This avoids missing the opportunity while preventing forced chasing if oil prices rebound.
Inventory Risk: Pressure to Deplete High-Cost Inventory
The crude oil decline simultaneously creates inventory management challenges for both chemical fiber and weaving mills. Factories that purchased large quantities of PTA and polyester at high oil prices face raw material depreciation risks. For example, polyester DTY (Draw Textured Yarn) averaged around 8,500 RMB/ton in early July; if crude remains weak, month-end prices could fall below 8,200 RMB/ton, implying a paper loss of 300 RMB per ton. This is a warning signal for cash-strapped small and medium weaving enterprises.
On the other hand, the crude decline may accelerate polyester plants' price-cutting destocking actions. The current industry inventory days for polyester are around 15-20 days, at a moderate level. If oil prices weaken further, plants may proactively lower quotations to compete for orders, triggering a phased polyester price decline. This benefits enterprises with procurement needs but hurts traders holding large finished product inventories.
Practical Recommendations
For Procurement Teams - Leverage the crude decline window to renegotiate Q3 contract prices with chemical fiber suppliers, aiming for 2%-3% discounts - Switch procurement cycles from monthly to bi-weekly orders to cope with rapid price changes from oil volatility - Monitor PTA futures near-month contracts; if the main PTA contract breaks below 5,800 RMB/ton, consider locking in some raw materials in advance
For Foreign Trade Enterprises - Add crude oil price linkage clauses in export quotations to partially transfer raw material cost fluctuation risks to overseas clients - With the RMB exchange rate relatively stable and crude decline reducing export product production costs, consider increasing USD quotation competitiveness - Be alert to Southeast Asian competitors potentially using low-cost raw materials to snatch orders; prepare differentiated product solutions in advance
The crude market still faces dual disturbances from OPEC+ production policies and global demand expectations in the short term. Textile enterprises should avoid overbetting on one-sided trends. However, it is certain that crude below $80 is opening a new cost range for the chemical fiber chain. How to optimize procurement rhythm within this range will determine H2 gross margin direction.