Polyester industry half-year panorama: Profits Concentrate Upstream, Short Fiber and Bottle Chips Face "Production Cuts for Self-Rescue"

A recent report by Cathay Futures, titled "2025 Semi-Annual Market Outlook for Staple Fiber and Bottle-Grade Chip Futures: Risk Resonance in Q3, Stabilization Possible in Q4," indicates that in the first half of 2025, the polyester industry chain experienced a "tale of two extremes": profits in the upstream PX and PTA segments continued to strengthen, while the downstream staple fiber and bottle-grade chip segments struggled under high operating rates, high inventory, and demand uncertainty, with processing fees compressed to historical lows.

As the third quarter approaches, industry consensus is gradually pointing towards self-preservation through concentrated production cuts, which may become the only way out for the middle and lower streams.

From the perspective of price trends, short fiber experienced a rebound in January and February, supported by pre-Chinese New Year restocking and a rise in raw material prices. However, after the holiday, weak demand and fluctuating U.S. tariff policies in March caused short fiber prices to plummet rapidly. In April, the collapse of crude oil and PTA costs led to a simultaneous drop in short fiber prices. In May, with the easing of tariffs, market sentiment improved, and restocking drove a temporary rebound in prices.

The trend of bottle-grade PET chips remained relatively firm. In January and February, production was reduced due to concentrated sales pressure during the off-season. After March, as spot supply tightened and exports remained strong, the processing fees for bottle-grade PET chips temporarily recovered. In April, prices fell due to a collapse in raw material costs, but the low prices led to significant stockpiling for export, driving up prices and the basis again by the end of April. In May, daily production increased by 25% year-on-year.

As of May, the cumulative production of staple fiber reached 3.35 million tons, an increase of 5.9% year-on-year; the production of bottle-grade polyester increased by 11% year-on-year.

Behind the fluctuations, there is a severe imbalance in industry profit distribution. Data shows that in the second quarter of 2025, the PX-naphtha price spread remained high at 700-800 USD/ton, while the cash flow margin for short fiber processing fees was compressed to 800-850 RMB/ton, and the bottle chip processing fees also fell to the lowest point in nearly five years.

The naphtha market is experiencing "near-term looseness and long-term tightness," with cracking margins under pressure and low ethylene operating enthusiasm, leaving limited room for short-term price premiums. PX remains in a tight balance, with about 3 million tons of new capacity added throughout the year, mainly concentrated in Yulong Petrochemical's facilities. Maintenance in the second quarter supports prices, and the PX-MX spread remains at a high level. PTA will see new capacity additions of up to 11.6 million tons, with an annual growth rate of 9.9%, highlighting supply pressures. In the short term, inventory reduction relies on maintenance. If demand does not improve in the second half of the year, PTA may be forced to cut production.

The concentration of profits in the PX and PTA segments leaves midstream and downstream enterprises "gasping for breath." If downstream demand fails to be unleashed, a negative feedback loop in the third quarter may propagate along the path of "polyester production cuts — PTA production cuts — PX weakening," leading to a unilateral decline in prices.

The new capacity for staple fiber throughout the year is only about 320,000 tons, an increase of 3.3%, which is far lower than that of filament and bottle-grade chips. However, high operating rates are a significant feature this year, with the operating rate maintained at 90%-95% from January to May. Inventory pressure has gradually accumulated, with cotton-type inventory reaching a maximum of 22 days, which, although lower than the 40-50 days for filament, is already at a historically high level. New bottle-grade chip capacity has been concentrated and realized, with Yizheng Chemical Fiber's 500,000 tons and Sanfangxiang's 1.5 million tons units coming online, increasing the industry's effective capacity by about 10%. In the second half of the year, Shandong Fuhai's 600,000 tons unit is planned to be implemented.

Industry data shows that the operating rate of bottle-grade PET fluctuates significantly, ranging from a low of 50% in the off-season to a high of 94% in the peak season. With production running at high levels, social inventory is showing an accumulation trend.

Investment in the textile and apparel industry continues to expand, with fixed asset investment growth rates from January to April reaching 27.1% for the apparel sector and 13.5% for the textile sector, both exceeding the overall industry average of approximately 4%. However, end-consumer demand remains weak, with retail sales of clothing, footwear, and hats increasing by only 3.1% year-on-year from January to April, apparel and accessories profits declining by 12.7% year-on-year, and the consumer confidence index lingering at a low level.

The downstream profit of the textile industry continues to be squeezed. Apart from restocking in May, the inventory of weaving raw materials remains at the lowest level in nearly five years. The long-term negative profit of yarn further weakens the willingness to restock.

The demand for bottle flakes in beverage packaging shows a "peak season not strong" characteristic. From January to April, the production of soft drinks increased by 3% year-on-year, and retail sales increased by 0.3% year-on-year. However, the sales of sugar-free tea decreased by 3.2% year-on-year. Although sports drinks and plant-based drinks maintained double-digit growth (+12.4%, +11.7%), their combined market share was less than 15%. Edible oil packaging remains a necessity, with vegetable oil production increasing by 3.4% year-on-year from January to April.

In the first half of the year, bottle-grade PET exports grew significantly, with a year-on-year increase of 27.3% from January to April, and short fiber exports increased by 8.5% year-on-year. However, the growth in exports is more due to low-price stockpiling and early fulfillment of tariffs, raising doubts about its sustainability. From May, freight rates on the US West Coast route have increased by 15%-20%. Coupled with the third-quarter China-US trade negotiations and global macroeconomic uncertainties, the pace of exports may slow down.

The processing fees for staple fiber and bottle-grade PET chips continue to operate around the cash flow cost margin. It is expected that in the third quarter, the industry will alleviate inventory pressure through concentrated production cuts, especially for bottle-grade PET chips. To balance supply and demand, the production cut needs to reach more than 10%. However, considering the weak demand during the off-season, the duration of the production cut may be limited. After the concentrated production cut, the operating rate will still rebound.

In the event of a deep negative feedback loop in the third quarter, combined with the digestion of external risks, the industry is expected to achieve a stage of stabilization in the fourth quarter. However, this process depends on the improvement of end-consumer demand and a rebound in export demand. Processing fees at extremely low levels have the potential for technical recovery, but sustained momentum will still depend on downstream forces.

Risks to be aware of include:

The first is the policy uncertainty brought about by the U.S. tariff negotiations and the expiration of the debt ceiling in the third quarter.

The second is the impact of significant fluctuations in U.S. shipping costs on the export pace.

3. The increase in production by OPEC+ and the fluctuations in crude oil prices have impacted the cost side.