Polyester filament factories: the worst may be over

*April and May were supposed to be the toughest period for PFY manufacturers.

*Judging by sales performance in June, the hardest phase for PFY producers is likely fading gradually.

From March to May, PFY prices surged sharply before falling into a negative feedback loop with gradual price declines. Meanwhile, upstream and downstream production cuts hit their steepest levels in recent years.

Weak polyester demand in the first half of year stemmed less from actual consumption slumps and more from poor market sentiment, driven by fears of price drops once the Strait of Hormuz reopened. The production chain stretches long from weaving to dyeing & finishing and finished apparel, with numerous links. Buyers and sellers across intermediate segments, including various traders and wholesalers, slashed regular stockpiling and strictly purchased and produced only according to orders. This destocking created a cascading negative ripple effect up the supply chain.

April and May were supposed to be the toughest period for PFY manufacturers. Persistently sluggish sales ratio piled up inventory pressure for filament plants. Nevertheless, major PFY mills upheld output cuts to defend prices, keeping processing spread at relatively decent levels. In contrast, downstream players faced dual low inventories of raw materials and finished goods but suffered persistently poor, even prolonged loss-making processing spread. They were forced to curb inventory accumulation via production reductions to avert future inventory depreciation. Upstream and downstream sides remained locked in a standoff, awaiting either eased straits risks or a pickup in downstream demand.

Entering June, the strait remains closed far longer than anticipated. Upstream PTA plants operated at low run rates, accelerating its destocking pace. Order placement for downstream products drew near (markets expected moderate improvement between June and July), lifting downstream willingness to hold stock compared with May. For instance, purchasing cycles extended from once every 3–5 days to 7–10 days. A small number of downstream firms even planned phased raw material position building. However, most downstream players still waited for a final price dip post strait reopening, the gap between their expected price floor and current market prices narrowed notably. In the first week of June, PFY sales rebounded, with inventories of major filament all declining.

In the second week of June, Israel-Hamas hostilities reignited, sending international crude oil prices surging then retracing. Volatile geopolitics in the Middle East disappointed markets that had been banking on strait reopening. Beyond ramping up concentrated restocking for rigid essential needs, some downstream buyers launched speculative stock builds, with raw material procurement cycles extended as far as late-June, late-July, or even August for certain enterprises.

A sharp jump in PFY sales bought manufacturers ample breathing room through late-June. Judging by sales performance over the past two weeks in June, the hardest phase for PFY producers is likely fading gradually. With incremental demand improvement ahead, PFY plants are poised to shift from a defensive to offensive operating stance. Even if straits reopen in July-August and crude oil retreats further, downside room for PFY prices may remain limited.

In previous years, merchants built inventories early in the first half of year, with demand kicking off around August in the second half of year. This year, lacking pre-season stockpiles, demand recovery is projected to arrive earlier, in June–July. Large downstream fabric merchants, in particular, must roll out phased second-half stock builds due to their substantial order volumes.

If the Middle East geopolitical tensions ease: Navigation through the Strait of Hormuz resumes gradually, easing downside risks for crude oil prices, while Middle East market demand is set to rebound. Additionally, a phase of stabilized Sino-US trade conditions coincides with a mild restocking cycle in the US. Exports are expected to pick up notably in the second half of year, with polyester downstream goods seeing a strong recovery in export. Sharp restocking demand will emerge across polyester's midstream and downstream sectors, jumping from depleted inventories to elevated stock levels. Polyester demand will boast far greater elasticity than other fiber varieties. Both supply and demand is expected to expand for polyester, with demand outpacing supply elasticity and tightening market availability.

If the Middle East geopolitical risks sustain: Prolonged closure of the Strait of Hormuz keeps crude oil prices swinging at high levels, amplifying cascading shocks to global supply chains. Prolonged stress will drag down global economic growth and suppress export demand overall. By comparison, spandex, cotton and VSF downstream sectors will face milder demand pressure than PFY and NFY counterparts. Though polyester's midstream and downstream players still hold restocking intent amid low inventories, weaker actual demand may cap the scale of stock builds. However, polyester supply losses is expected to far outweigh demand losses, which may still tip the market into supply tightness.

In summary, regardless of whether Middle East geopolitics ease in the second half of year, low midstream & downstream inventories paired with the seasonal peak will trigger a bottom-up restocking cycle across the entire polyester chain. The only difference lies in the magnitude and pace of inventory replenishment.