On July 24, international oil markets experienced a concentrated sell-off during intraday trading. Brent crude at one point fell over 3%, hitting a low of $92.02 per barrel, while WTI crude simultaneously breached the $90 threshold, bottoming out at $89.7 per barrel. The two benchmarks dropped more than $3 within just a few hours, marking the sharpest short-term volatility in nearly a month.
For the textile industry, crude oil prices are never an isolated financial variable. They directly determine the pricing center of polyester raw materials such as PX, PTA, and MEG, and then transmit through the supply chain to chemical fiber varieties like polyester filament, polyester staple fiber, nylon, and spandex. Since 2024, international oil prices have maintained a high-level range-bound pattern, with Brent crude oscillating between $90 and $95, providing a relatively stable cost floor for the polyester chain. However, the sharp decline on July 24 suggests that this floor may be weakening.
Cost Transmission Mechanism and Price Expectations
Historical patterns show that every $5 per barrel drop in crude oil prices roughly leads to a reduction of about 300 yuan per ton in PTA costs, and the cash flow profit of POY polyester filament will correspondingly narrow by 200-250 yuan per ton. Currently, the polyester sector itself is already in a state of high inventory and low profit margins. Public industry data shows that as of mid-July, the average cash flow profit of POY polyester filament was only about 150 yuan per ton, a three-year low for the same period. If crude oil prices continue to decline, polyester plants will face dual pressure from both raw material and product ends, and will likely reduce prices to clear inventory.
What does this mean? For downstream weaving companies, the period from late July to early August may usher in a window for chemical fiber price reductions. However, it should be noted that in the early stages of a sharp oil price drop, polyester plants often adopt a wait-and-see approach or limit production to support prices, with a price transmission lag of 1-2 weeks. The real procurement window may appear in early August, when polyester plants, facing inventory pressure combined with cost collapse, will have a stronger incentive to reduce prices and destock.
Chain Reactions in Regional Industrial Clusters
Chemical fiber weaving industry clusters such as Shengze, Keqiao, and Changxing are most sensitive to this round of oil price fluctuations. Gray fabric inventories in these regions have remained at high levels above 30 days for three consecutive months, and weaving operating rates have generally fallen to 65%-70%. If cost easing can be successfully transmitted downstream, it will help gray fabric prices return to a reasonable range and alleviate the capital pressure on traders and dyeing factories.
On the other hand, sharp oil price drops may also intensify market wait-and-see sentiment. Buyers are prone to fall into a psychological game of waiting for even lower prices, leading to shrinking transaction volumes in the short term. This negative feedback loop of 'the more it falls, the less people buy' occurred multiple times in the third quarter of 2022, ultimately forcing polyester plants to significantly cut production. Currently, the polyester operating rate is about 86%. If downstream procurement remains stagnant, production cuts may expand from 5%-10% to over 15%.
Hedging Window for Foreign Trade Enterprises
For textile foreign trade enterprises that settle in US dollars, the cost benefits from falling oil prices need to be considered in conjunction with exchange rate fluctuations. On July 24, while oil prices plunged sharply, the RMB exchange rate maintained a narrow range and did not appreciate significantly. This means that export companies can enjoy the dividend of lower raw material costs in the short term without having their order profits eroded by exchange rate appreciation.
However, the risk lies in the fact that a sharp drop in oil prices is often accompanied by weakening global economic expectations, and overseas customers may seize the opportunity to request price renegotiations. A similar scenario occurred in the second quarter of 2023 when oil prices fell 8% in a single week, and European and American buyers generally demanded that suppliers lower their FOB quotes by 5%-8%. Foreign trade enterprises need to prepare cost calculation models in advance to maintain the upper hand in negotiations.