On the morning of August 3, Brent crude futures plunged as much as 7.3% to $81.55 per barrel, while WTI fell below the $80 mark. At the same time, polyester filament yarn prices showed only a slight easing of about 50 yuan per ton, with some specifications holding completely steady. The sharp contrast between violent upstream swings and downstream stillness reveals a deep 'desensitization' process in the polyester chain—oil price stories no longer hold decisive power over polyester yarn.
Event Background
The immediate trigger for this oil crash was a sudden shift in Trump's stance on Iran. On July 31, he claimed to be 'seriously considering' striking Iranian energy facilities, only to say on August 2 that an agreement on the Strait of Hormuz existed and that negotiations would begin the next day. While such flip-flopping has caused market fatigue, capital flows still respond, leading to wild oil price swings. Notably, this is the latest in a series of US-Iran conflicts, and the transmission of each oil price fluctuation to the polyester chain has been weakening.
From the industry perspective, polyester filament yarn has shown an independent trend over the past two months: when crude surged, yarn prices rose only 50-100 yuan per day; when crude crashed, yarn fell slightly or even stayed flat. This 'resistance to decline' is not demand-supported but results from a balance between supply and cost. Polyester mills currently hold manageable inventories, and higher-cost raw materials have been largely consumed, weakening the rigidity of cost pass-through and reducing yarn's sensitivity to oil.
Industry Impact
The reaction from downstream weaving mills is more telling. During the traditional off-season, weaving utilization rates are below 50%, with many mills lacking stable orders and some having reduced or halted production. Under these circumstances, raw material purchases are essentially for immediate needs, and small price fluctuations have little effect on such customers. However, if oil prices continue to crash and polyester yarn follows significantly, even just-in-time buyers may delay purchases and wait. This suggests that yarn prices will remain in a narrow range in the short term, with limited upside or downside.
The real variable is time. On one hand, blockades of the Strait of Hormuz and Bab el-Mandeb have raised oil transport costs, and even if some oil gets through, landed prices have risen significantly, supporting a higher oil price center in the medium term. On the other hand, massive production cuts in the weaving sector since the first half of the year have reduced gray fabric inventories by more than 10 days compared with the same period last year. This inventory drawdown means that once downstream demand recovers, the market could quickly shift from a buyer's market to a seller's market—gray fabric prices often start rising when inventories approach depletion, as mills become reluctant to sell.
Practical Recommendations
For Buyers - Purchase on a need-only basis in the short term; do not panic-bargain due to oil price drops, as yarn has limited room to fall. - Watch for demand recovery signals in late August; if gray fabric inventories accelerate their decline, lock in raw material contracts early to avoid later price increases. - Diversify purchasing channels and consider monthly floating-price contracts with polyester mills to hedge against oil volatility.
For Foreign Trade Companies - Use the current low yarn price period to negotiate long-term contracts with overseas clients, locking in costs and quotations. - Closely monitor the Strait of Hormuz situation, assess changes in shipping insurance and transit times, and plan shipments in advance. - Include raw material price adjustment clauses in quotations to avoid cost pass-through failures during oil spikes.
Overall, the short-term pattern of oil swinging and yarn moving mildly is likely to continue, but late August is a key turning point. If inventory destocking and demand recovery resonate, both yarn and gray fabric prices could see an upward wave. All parties in the chain should prepare in advance rather than react passively.