In July, polyester staple fiber (PSF) surged on geopolitical premiums in crude oil, with East China spot prices touching 7,675 yuan/ton. By early August, risk premiums faded, weakening feedstock support. Meanwhile, PTA and ethylene glycol maintained low inventories due to plant maintenance and port disruptions, with basis widening to near 300 yuan/ton and 540 yuan/ton respectively, providing cost support. However, ample supply and weak demand squeezed processing margins, expanding industry losses. On August 15, major producers jointly announced production cuts, marking an active supply adjustment cycle.
Cost-Supply Dynamics
Feedstock markets show divergent strength. For PTA, delayed restarts of two key plants and rain disruptions at East China ports tightened spot supply, with August social inventories expected to hit a 44-month low. Ethylene glycol saw reduced imports due to Middle East tensions and channel blockages, coupled with domestic maintenance, pushing East China port inventories to a 15-year low. These low inventories underpin PSF costs, but upcoming restarts will add supply, weakening support later.
On the supply side, PSF operating rates rose to 70.36% in July, with ample spot supply and new capacity planned for H2. Demand remains weak, with limited order growth for downstream textiles, high yarn inventories, and just-in-time purchasing. This supply-demand mismatch is the root cause of losses, and the August 15 coordinated cuts directly address this imbalance.
Production Cuts and Transmission
The cuts involve leading producers in Jiangsu, Zhejiang, and Fujian, covering mainstream direct-spun capacity. These are proactive adjustments, not passive shutdowns. Cutbacks will intensify in late August, with September seeing concentrated implementation and maintenance. If executed, operating rates could fall to around 67%, reducing monthly supply by 30,000 tons, easing spot oversupply and providing price support.
However, effectiveness is uncertain. First, if prices rebound and margins recover, some producers may relax cuts. Second, new capacity is delayed, not canceled, and will return once profitability improves. Most critically, demand is the key constraint; without improved orders in September, supply cuts alone cannot sustain price increases.
Keqiao Market as a Barometer
As a key fabric trading hub, Keqiao Light Textile City saw sluggish transactions in August, with fabric sales mainly in small lots. Weaving mills operated at low rates, and merchants bought on demand, avoiding stockpiling. Upstream price increases struggle to pass through to fabric prices, facing significant resistance. Whether the September peak season materializes depends on new order growth and restocking willingness. Without a recovery in Keqiao transactions, upstream production cuts will have limited impact.
Price Outlook
From late August to early September, production cuts and cost support will likely stabilize and strengthen prices, with processing margins gradually recovering. In mid-to-late September, the market will fluctuate between weaker costs and demand recovery, likely maintaining an upward bias with volatility. The biggest risk is supply rebound after margin recovery, as price gains may prompt relaxation of cuts and release of delayed capacity, capping upside.