In July, polyester staple fiber (PSF) prices surged to 7,675 yuan/ton in East China spot markets, then cooled in early August as crude oil risk premiums faded. Yet a differentiated firmness in raw materials pushed prices up again. More notably, on August 15, major PSF producers jointly launched a production-cut self-rescue plan, signaling a shift from passive pressure to active supply adjustment, aiming to defend processing margins amid weak demand.
Background
The direct trigger for the cuts is squeezed processing fees. In July, industry operating rates hit 70.36%, with ample spot supply, while downstream yarn mills held high finished goods inventories and only restocked on a need basis. Both domestic and export orders showed no substantial recovery. Oversupply met tepid demand, compressing processing fees and widening losses, forcing collective action.
Raw materials still provide short-term support. Two major PTA units delayed restarts, and rainfall in East China disrupted port loading, pushing spot basis to nearly 300 yuan/ton, with August social inventories expected to hit a 44-month low. MEG, affected by Middle East tensions and maintenance, saw port inventories in East China drop to a 15-year low, with spot premiums reaching 540 yuan/ton in early August. Low inventories underpin PSF costs, but upcoming unit restarts could weaken this support.
Industry Impact
The effectiveness of production cuts depends on execution. In late August, cuts will intensify, and September will see concentrated implementation and maintenance, potentially lowering operating rates from 70.36% to around 67%, reducing monthly supply by about 30,000 tons. This signals a clear bottom for spot markets, especially with some brand inventories low, preventing deep price declines.
For Keqiao Light Textile City and the surrounding Xiaoshao weaving cluster, tighter raw materials raise traders' costs, limiting fabric price declines and somewhat alleviating low-price competition. However, fabric price hikes face resistance—August is a traditional off-season, with gray fabric transactions shrinking, weaving mills running at low rates, and merchants buying hand-to-mouth, limiting cost pass-through.
Long-term, production cuts carry elasticity risks. If prices rebound and margins improve, cash-strapped firms may reduce cuts; new capacity is delayed, not canceled, and will return once profits recover. Demand remains the core constraint; without significant September order improvement, supply cuts alone won't sustain a rally.
Practical Advice
From late August to early September, production cuts should stabilize and strengthen the market, with processing fees gradually recovering. In mid-to-late September, the market will oscillate between weaker costs and demand recovery. Monitor actual cut implementation, unit restarts, yarn mill operating rates, terminal orders, and restocking intentions.