On August 15, the domestic polyester staple fiber (PSF) industry witnessed a rare collective action: major producers simultaneously announced output cuts and deferred new capacity. This move comes against a backdrop of squeezed processing margins and widening losses, while feedstock PTA and MEG remained firm due to low inventories. Squeezed between high costs and weak demand, the supply side finally made an active adjustment.
Event Background: Cost Support vs. Weak Demand
In July, geopolitical tensions in the Middle East pushed international crude oil higher, lifting PSF spot prices to a peak of 7,675 yuan/ton. Entering August, the geopolitical risk premium faded, weakening the feedstock pull. However, PTA and MEG showed divergent strength due to maintenance and low port inventories. PTA basis approached 300 yuan/ton, with August social inventories expected to fall to a 44-month low; MEG port inventories in East China dropped to a 15-year low, with spot premiums reaching 540 yuan/ton in early August. Low inventories provide cost support for PSF, but the restart of maintenance units will add supply later, posing a risk to cost support.
Downstream demand, however, showed no improvement. In July, the PSF industry operating rate stood at 70.36%, with ample spot supply, while terminal textile orders saw limited growth, yarn mills' finished goods inventories remained high, and procurement stayed at just-in-time levels. Keqiao Textile City, a core fabric trading hub, saw gray fabric transactions shrink in August, with weavers and traders cautious, operating rates low, and purchases on a need-basis. PSF-related fabrics moved mainly in small and scattered orders, and upstream price hikes failed to transmit downstream.
Industry Impact: Production Cuts Provide a Floor but Not a Trend Reversal
These cuts are proactive market adjustments, unlike passive shutdowns from equipment failures. Leading enterprises in Jiangsu, Zhejiang, and Fujian all participated, covering mainstream direct-spun capacity. If the self-discipline measures are effectively implemented, the industry operating rate could fall to around 67%, reducing monthly supply by about 30,000 tons, easing spot oversupply and preventing deep price declines. For Keqiao and the surrounding Xiaoshao weaving cluster, tighter feedstock supply will raise traders' costs, limiting fabric price cuts and easing low-price competition, but without clear order improvement, fabric price hikes face resistance.
However, the medium-to-long-term effectiveness of production cuts is uncertain. First, enforcement may be flexible; if prices rebound and margins recover, cash-strapped enterprises may resume loads. Second, new capacity is deferred, not canceled, and supply pressure will return once the industry turns profitable. Third, demand remains the core constraint. Whether the Golden September peak season materializes depends on actual new and repeat orders at Keqiao Textile City, and whether weavers shift from just-in-time to proactive restocking. If market turnover fails to recover, the boost from production cuts will be greatly diminished.
Overall, from late August to early September, the implementation of cuts should stabilize and strengthen the market, with processing margins gradually recovering. In mid-to-late September, the market will likely oscillate upward as it balances weaker costs against demand recovery, making a sustained one-way rally unlikely.