Since July 8, the blockade of the Strait of Hormuz has driven global oil prices up nearly 3% in a single week, with WTI crude briefly returning to the $80 range. This geopolitical event quickly rippled through the polyester chain, reversing a prolonged decline in polyester filament yarn prices, with some factories raising prices twice in one day. But is this rally a trend reversal or a panic-driven spike?
Geopolitical Conflict Ignites Raw Material Markets
On July 8, U.S. Central Command launched strikes against Iran in response to attacks on commercial shipping. Subsequently, a senior Iranian naval officer was killed, and the Strait of Hormuz was again closed. Oil prices surged, with a near-3% gain on July 12. The polyester chain was jolted, and polyester filament yarn prices rebounded sharply after previous declines. Data shows that on July 8, the average sales-to-production ratio for polyester filament yarn soared to 361.9%, and the weekly average reached 132.7%. This indicates downstream mills are panic-buying rather than purchasing on demand.
Notably, before the blockade, a large number of oil tankers had already exited the strait, preventing a severe global supply shortage. Markets widely believe the blockade will not last, but short-term sentiment has already roiled the polyester market.
Supply Contraction Supports Prices, but Demand Remains Weak
The polyester sector's rally has some foundation. Current polyester filament yarn capacity utilization stands at only 74.6%, well below last year's levels. Upstream PTA and PX maintenance is frequent, tightening supply and supporting raw material prices. This means even without the geopolitical event, polyester prices had some downside protection. However, downstream weaving is in a different situation. It is the traditional off-season, with few orders. Weavers face a dilemma: running machines risks inventory buildup, while stopping risks missing further price increases. Price volatility in the first half of the year has already left them exhausted.
This sales surge is more panic-driven than demand-driven. Once geopolitical tensions ease and oil prices fall, polyester prices could quickly correct. Textile firms should avoid the trap of buying high and selling low.
Possibility of Oil Returning to $100
U.S.-Iran conflicts are inherently cyclical. This time, the trigger was Iran's attempt to charge fees for Strait of Hormuz passage, which the U.S. rejected, leading to escalation. A previous memorandum of understanding has been torn up, but in the long run, periods of fighting and talking are the norm. Markets believe the blockade will not last long, as it also harms Iran's economy. However, if the conflict escalates, oil prices breaking $100 is not impossible. For textile firms, the key is whether the situation expands.
Historically, geopolitical-driven oil rallies are rarely sustained, but short-term volatility can disrupt raw material procurement. Textile companies should monitor developments closely and avoid excessive hoarding or complete stockout.