Squeezed processing fees and widening losses pushed the polyester staple fiber (PSF) industry into a coordinated production cut led by major producers in mid-August. Industry data shows July operating rates had climbed to 70.36%, leaving supply ample, while downstream demand remained sluggish. This supply-demand mismatch drove processing fees below breakeven, forcing companies to actively adjust supply rather than passively wait for market clearing.
Cost Support and Supply Contraction Logic
Strong raw material prices underpin this production cut. For PTA, delayed restarts of two major units, coupled with rainy weather disrupting port loading in East China, pushed spot basis close to 300 yuan/ton, with August social inventories expected to hit a 44-month low. MEG also stayed firm: Middle East tensions reduced imports, domestic units underwent concentrated maintenance, and East China port inventories fell to a 15-year low, with spot premiums reaching 540 yuan/ton in early August. Low inventories provide short-term cost support, but market expectations of unit restarts in September may weaken this support.
The actual effect of production cuts depends on execution. If operating rates drop from 70.36% to around 67%, monthly supply would shrink by about 30,000 tons, easing the loose spot market. With some brand sources holding low inventories, tighter spot circulation would solidify price floors. However, these cuts are voluntary; once prices rebound and processing fees recover, cash-strapped companies may relax output cuts, making supply contraction sustainability questionable.
Weak Demand as Core Constraint, Keqiao Market as Observation Window
Downstream demand is the key variable. Terminal textile orders showed limited growth, yarn mills kept high finished goods inventories, and procurement remained just-in-time with low restocking appetite. As a domestic fabric trading hub, Keqiao Light Textile City saw reduced gray fabric transactions in August, with weaving mills running at low rates and merchants buying on demand. PSF-related fabrics moved in small, scattered orders, with only a few export orders following up. This means upstream price hikes struggle to pass through to fabric terminals, and fabric price increases face resistance.
Keqiao's transaction activity serves as a vital window for observing 'Golden September' demand realization. If autumn/winter fabric orders release in September, weaving mills may shift from just-in-time to active restocking, driving PSF procurement upward. But currently, the market remains in an expectation phase with no clear order recovery signals. If Keqiao transactions fail to pick up, the boost from production cuts will be significantly diminished.
Price Rhythm Forecast and Risk Warning
From late August to early September, production cut implementation should stabilize and strengthen the market, gradually restoring processing fees. In mid-to-late September, the market will likely oscillate upward as cost weakness and demand recovery compete. However, a one-sided rally is unlikely; the biggest risk lies in supply rebound after profit recovery—existing companies may raise operating rates, and delayed capacity may come online, suppressing price and processing fee recovery. Market participants should track major producers' cut implementation, upstream unit restarts, yarn mill operations, terminal orders, and restocking willingness, while closely monitoring Keqiao fabric transactions and weaving rates to validate actual downstream demand.