In mid-August, the domestic polyester staple fiber (PSF) industry witnessed a rare coordinated production cut. This was not passive shutdowns caused by equipment failures, but proactive supply adjustments by major producers aiming to pull the industry out of losses. Data shows that in July, the industry operating rate was as high as 70.36%, with ample spot supply, but downstream orders grew little, squeezing processing margins and expanding losses. Whether this self-rescue production cut can truly support the price floor remains to be seen.
Cost-Side Divergence and Support
The feedstock market currently shows a divergent but firm pattern. For PTA, the restart of two core units was delayed, coupled with rainfall disrupting port loading in East China, tightening spot supply and pushing the basis close to 300 yuan/ton, with August social inventories likely to fall to a 44-month low. MEG is also strong: Middle East tensions reduced import arrivals, domestic units underwent concentrated maintenance, keeping operating rates low, and port inventories in East China dropped to a 15-year low, with spot premiums reaching up to 540 yuan/ton in early August. Low inventories provide tangible cost support for PSF.
However, the support is not unbreakable. Later, maintenance units for both PTA and MEG are scheduled to restart, bringing incremental feedstock supply and weakening cost support. This implies that the space for processing margin recovery may be partially offset by falling upstream costs, and whether the industry can truly emerge from losses depends on the race between costs and product prices.
Supply-Demand Mismatch Is the Root Cause
The deep losses in PSF, superficially due to high costs, are essentially caused by supply-demand mismatch. In July, the operating rate was 70.36%, with ample spot supply, and new capacity is planned for H2, adding long-term supply pressure. On the demand side, terminal textile and apparel orders grew little, yarn mills held high finished goods inventories, and procurement remained just-in-time, with low willingness for active stockpiling. Both domestic and export orders have not shown substantial recovery.
As the core hub of China's textile fabric trade, Keqiao Light Textile City directly reflects downstream weakness. August is a traditional off-season: grey fabric transactions contracted, weaving and trading merchants were cautious, operating rates remained low, and purchases were mostly on-demand with little stockpiling. PSF-related fabrics moved in small and scattered orders, with only a few targeted export orders following up, limiting the market's ability to pass on raw material price increases. Upstream cost hikes cannot smoothly transmit to fabric end-users, leaving midstream players to absorb the pressure.
Can Production Cuts Turn the Tide?
This production cut is a proactive adjustment by enterprises, with leading producers in Jiangsu, Zhejiang, and Fujian all participating, covering mainstream direct-spun capacity, marking the industry's official entry into a profit-protection cycle. In the short term, supply contraction can provide bottom support. If industry self-discipline is effectively implemented, the operating rate could fall from 70.36% to around 67%, reducing monthly supply by about 30,000 tons, effectively easing the spot surplus. Combined with low inventories of some branded sources, tightening spot circulation can prevent deep price declines.
However, medium- and long-term effects are uncertain. First, production cut execution is flexible; once prices rebound and margins recover, some cash-strapped companies may reduce cut rates and restore loads. Second, new capacity is only delayed, not canceled; once the industry turns profitable, shelved capacity will still be released. Third, demand is the core constraint on upward price movement. If downstream orders do not improve in September, relying solely on supply contraction will hardly sustain a strong rally.
Key Variables for the 'Golden September' Rally
Based on industry chain information, this coordinated production cut can clearly underpin PSF prices. As cuts gradually take effect in late August, supply-demand structure improves, and with high feedstock basis support, processing margins have room to recover, potentially improving corporate losses. In September, PTA and MEG units restart, weakening cost support, but downstream textile demand repair expectations may increase just-in-time purchases, driving PSF prices to rise with fluctuations.
However, a one-way rally is unlikely, with the biggest risk being supply rebound after margin recovery. Once prices warm, existing producers may loosen cut execution and raise loads, and delayed capacity may be released, suppressing price and margin recovery, likely leading to repeated fluctuations. Keqiao Light Textile City's transaction activity is a key window to observe the realization of 'Golden September' demand, focusing on actual increments in new and repeat orders, and whether weaving mills shift from just-in-time to active stockpiling.