Polyester industrial chain: a three-way stalemate after cost collapses

*A fierce tug-of-war over sales, prices and profits is quietly unfolding across the upstream raw material, midstream filament and downstream segments of the supply chain.

*No segment within the polyester industrial chain is willing to make voluntary concessions for the time being.

Following the conclusion of a peace agreement between the United States and Iran, shipping through the Strait of Hormuz has gradually resumed, triggering an immediate drop in oil prices back to pre-conflict levels. For the polyester industry, however, the steep oil price slump and resulting sharp cost reduction have failed to deliver a win-win outcome. Instead, a fierce tug-of-war over sales, prices and profits is quietly unfolding across the upstream raw material, midstream filament and downstream segments of the supply chain.

Raw material producers prioritize sales volume, PFY manufacturers chase profit margins, and downstream processors crave lower prices. The three parties hold conflicting demands: the gains of raw material suppliers and downstream players seemingly come at the expense of PFY manufacturers, and vice versa. At present, PFY enterprises have seized the critical leverage of production cuts to gain tight control over the fates of both upstream and downstream sectors.

Downstream processors: suffering losses based on spot feedstock price

The downstream weaving segment undoubtedly bears the brunt of pain across the entire polyester industrial chain. Prior to the oil price crash, fabric mills endured the predicament of high feedstock price: prices of upstream PFY stayed high, but prices of downstream DTY and fabrics were hard to increase, leaving most under losses based on spot feedstock price.

The sharp decline in oil prices has drastically cut polyester raw material costs, offering downstream operators a much-needed reprieve. However, PFY prices possess remarkable resilience. From their perspective, PFY producers currently enjoy excessively high processing spread, creating an inequitable dynamic.

Downstream buyers are holding off on restocking until PFY prices fall to reasonable levels. Without affordable raw material costs, fulfilling downstream orders would amount to operating at a loss for minimal revenue.

Raw material suppliers: eagerly awaiting a boost in PFY consumption

Upstream polyester raw material producers face no less anxiety than downstream manufacturers. July will see extensive maintenance shutdowns for PX and PTA facilities, further lowering operating rate. Looking ahead to August and beyond, restored shipping through the Strait and the completion of refinery maintenance are expected to gradually ease the raw material shortage plaguing the market. The pivotal question now is whether polyester producers can ramp up operating rate to match the rebound in future raw material supply.

Raw material suppliers' core wish is for PFY manufacturers to raise production run rate. Higher PFY operating rate would lift direct demand for PTA, accelerate near-term inventory destocking, and restore long-term supply-demand balances. The most effective driver to push PFY producers to boost output is price discounts for promotion. Raw material suppliers are anxiously waiting for PFY manufacturers to launch large-scale promotions: robust sales would ease inventory pressure, embolden PFY producers to ramp up production, and revitalize the pace of raw material inventory drawdowns.

PFY manufacturers: building a profit barrier via production cuts

PFY producers operate on a straightforward rationale: in past years, they resorted to price cuts and promotions every time raw material prices fell, eroding processing spread to the bare minimum and reducing themselves to mere middlemen for upstream suppliers. They are resolute in defending the profit floor they have worked hard to establish this year. Previously, full-capacity operations yielded a profit of 100yuan/mt; currently, running at 70% capacity delivers 500yuan/mt of profit, a clearly favorable economic tradeoff. Unwinding price discipline now would not only deepen downstream wait-and-see sentiment but also render all prior production cut efforts futile.

This hardline stance has created current market deadlock: PFY producers refuse substantial price concessions, so downstream buyers stay on the sidelines, suppressing sales volumes. Sluggish sales leave PFY inventories unsold, eliminating any incentive to raise production rate. Stagnant PFY output stifles PTA sales, dashing hopes of accelerated upstream inventory reduction.

No segment within the polyester industrial chain is willing to make voluntary concessions for the time being: PFY producers are betting that downstream buyers cannot sustain losses indefinitely, adopting a strategy of incremental, modest price declines. They expect downstream operators to eventually accept prevailing prices once oil prices stabilize and rigid end-market orders emerge in the second half of the year. Downstream processors are waiting for PFY manufacturers to buckle under mounting inventory pressure, forcing them to roll out promotional price cuts and create an attractive buying trough. Raw material suppliers hope to break the stalemate, prioritizing robust sales above all else, regardless of whether PFY or downstream players ultimately yield ground.