International oil prices experienced sharp volatility between July 8 and 12, with WTI crude briefly returning to the $80/barrel range, rising nearly 3%. This move was not driven by traditional supply-demand logic but by geopolitical events—the re-blockade of the Strait of Hormuz.
Event Background
The blockade of the Strait of Hormuz followed an escalation in US-Iran military conflict. According to public reports, on July 8, the US Central Command announced a series of strikes against Iran in response to Iranian attacks on commercial shipping. Iran subsequently blocked the Strait of Hormuz, and the conflict resulted in the death of an Iranian naval air defense officer. This event quickly transmitted to commodity markets, igniting panic across the polyester supply chain.
Notably, before the blockade, a large number of oil tankers had already left the strait, preventing a severe short-term global crude supply shortage. Thus, oil prices did not surge to $100/barrel as they did earlier this year. However, market concerns about further escalation remain.
Industry Impact
Polyester filament yarn (POY) bore the brunt of the impact. The product had been in a prolonged downtrend, with polyester plants frequently offering promotions to reduce inventory. However, after oil prices rose on July 8, POY prices quickly reversed course, with some factories even raising prices twice in one day. Downstream weaving mills reacted strongly: on July 8, the average production-sales ratio for POY soared to 361.9%, and the weekly average reached 132.7%, far above normal levels.
This surge in production-sales ratios was essentially panic buying. Textile enterprises, still scarred by the raw material price spike at the start of the year, found themselves with low inventory levels. Fearing that oil prices could climb further, they rushed to stock up despite being in the traditional off-season with weak orders.
The supply-side contraction also supported price increases. Current POY capacity utilization stands at only 74.6%, well below last year's levels, with frequent maintenance shutdowns for upstream PTA and PX. This supply tightening makes raw material prices more resilient. But downstream weaving mills face a dilemma: running machines risks inventory buildup, while idling them risks missing out if prices continue to rise. The frequent price swings in raw materials during the first half of the year have left many firms exhausted.
Outlook and Practical Suggestions
In the long term, the sustainability of the Strait of Hormuz blockade is uncertain. Historical patterns suggest that US-Iran conflicts often follow a "fight and talk" cycle. Whether this escalation continues depends on both sides' next moves. Markets generally expect the blockade to be short-lived, but short-term geopolitical risk premiums have already been priced into oil. For textile firms, this means the window for raw material procurement may be extremely narrow, and chasing price hikes carries significant risk.
For Procurement Managers - Avoid blindly chasing price increases: The current rally is sentiment-driven, not based on demand recovery. Adopt a batch-by-batch procurement approach based on actual orders to control inventory cycles. - Monitor geopolitical developments: Changes in the Strait of Hormuz situation will directly impact oil and polyester costs. Establish an information tracking system to adjust procurement strategies in real time. - Use forward contracts for hedging: If raw material prices are expected to remain high, consider signing forward price-locking agreements with suppliers to stabilize costs.
For Export-Oriented Enterprises - Evaluate contract risks: For existing export orders without price locks, recalculate costs and negotiate price adjustments with clients if necessary. - Diversify supply chains: Explore alternative raw material sources from other polyester-producing regions (e.g., Southeast Asia) to reduce dependence on a single market. - Strengthen FX management: Oil price volatility may affect the US dollar index. Use forward forex contracts to manage currency risk.
Overall, the recent POY price rebound is more of a short-term event-driven move than a trend reversal. Textile enterprises should remain rational, avoid being swept up in panic, and closely monitor signs of end-demand recovery.