Downstream plants accelerate cutting production under various disadvantageous factors

According to the statistics from CCFGroup, the operating rate of DTY plants declined by seven percentage points to 69% this week, and that of fabric mills fell by four percentage points to 62%. With various disadvantageous factors, the production curtailment on downstream market has started accelerating.

After the Iran-Israel conflict eased, oil prices fell significantly, and negative feedback from downstream industries began accordingly.

For downstream players, during the earlier oil price rally, although downstream price spread was very narrow, they could still leverage time differences to repair processing spread-using raw materials purchased before the price hike to sell products at post-hike prices, thereby gaining cost competitiveness against peers. This led to periodically improving PFY sales ratio. However, once oil prices decline, under market bearish expectations, downstream players can no longer sustain this strategy. Instead, they face risks of narrow price spread, poor sales, and high inventory depreciation. Downstream firms with limited or exhausted raw material stockpiles are more likely to reduce or halt production.

As for the demand side, according to the survey made by CCFGroup, the downstream enterprises across all links think that the downstream order intake in July is in a gap period, exacerbating the dilemma of "selling at a loss but still unable to clear inventory." Downstream demand is expected to improve by late-August. The specific feedback from the survey is as follows:

·Finished product enterprises exporting to U.S.: U.S. orders halted in April have now been delivered in full. New orders remain minimal pending clarity on the tariff situation.

·Domestic garment manufacturers: Sample making for autumn-winter orders will only start by late-July, and fabric procurement for production will begin in August.

·Fabric export enterprises: Orders to the Middle East, which were halted during the Iran-Israel conflict, have recently resumed, but new orders are scarce. Processing and re-export orders to Southeast Asia have been fully delivered, with few new orders pending tariff negotiation results.

·Fabric mills: Export orders for Q2 have recently concluded, and a new round of concentrated export orders-mainly Christmas orders and spring-summer orders for next year-is expected to be placed by late-August. Domestic sales have entered the off-season; while there were inquiries and orders for domestic market products during the earlier oil price surge, these have now decreased again. Concentrated domestic orders for the second half of year are expected by late-August.

Additionally, recent extreme temperature spikes, with multiple regions seeing temperatures climb to 40°C, have also contributed to increased production cuts and shutdowns on downstream sector.

As for short-term trend, the orders for grey fabrics have been weak now. Domestic sales and export both lack orders. With falling price, sales of grey fabrics are unsmooth. The operating rate of DTY plants and fabric mills may reduce further with high inventory of grey fabrics, heat summer temperature and low profit. Some warping mills have successively shut down for holiday this week.