What challenges will textile enterprises face in the first half of 2025?

The upstream market is relatively strong, with further increases in costs.

As the PX trading benchmark gradually approaches concentrated maintenance, and with numerous downstream PTA facilities undergoing repairs and an expectation of inventory reduction, the PX inventory reduction is also quite strong, leading to positive supply and demand expectations. After the holiday, supported by fundamentals, PX prices have maintained a strong upward trend, with gradually recovering spot processing fees.

The operating rate of PTA plants in January-February this year is lower than the same period of last year, while the average monthly operating rate for polyester plants is at 84% and 86% respectively. The cumulative inventory increase for PTA in January-February is around 600,000 tons, which is lower than the same period of last year. On the other hand, due to persistently low processing fees, suppliers' enthusiasm for production has decreased, resulting in significant maintenance of PTA from March to May. In the context of reduced inventory accumulation in January-February and an expected increase in inventory reduction from March to May, PTA price is expected to follow PX with a strong rebound.

After the holiday, the inventory of PFY and PSF is lower than the same period of last year. With rising polyester cost, prices have slightly followed up, but the previously high processing spread has been moderately compressed due to stronger raw material prices.

Overall, the fundamentals of the PX-PTA-polyester chain are good after the holiday, making it easier for prices to rise than to fall in the short term. From the perspective of polyester polymerization rate, aside from slow recovery of run rate in PET bottle chip plants under significant pressure, the recovery of run rate in PSF and PFY plants has been relatively smooth after the holiday.

The performance of downstream market is temporarily below expectations, which may dampen upstream price increases.

1. The collection of payment was below expectations before the holiday, and post-holiday liquidity is tighter than previous years.

According to statistics from various downstream samples, the collection of payment was slow before the Spring Festival holiday, and the final cash collection amount was lower than previous years. Some downstream companies reported that only 30% of payments were collected before holiday. Coupled with the raw material stockpiling before holiday, the liquidity after the holiday is tighter than previous years, which may restrict raw material procurement to some extent. The low payment collection before holiday was partially attributed to poor sales in garment enterprises, leading to inventory backlogs and insufficient payments to upstream suppliers.

2. The recovery progress of operating rate in downstream fabric mills after the holiday may not match last year's levels.

In comparison to last year, the resumption of work in the downstream sector was relatively proactive for two reasons: First, for knitting enterprises, domestic demand was strong at the end of 2023, and knitting grey fabric inventories were nearly cleared out. With low inventories, the resumption of knitting operations after the holiday was quite active last year after holiday, even with weak orders, resulting in high operating rate. Second, woven fabric enterprises had good business in the first half of last year, with significant inventory depletion. In Changxing, there were even instances of sold-out stocks, leading to full operating rate. With high operating rate in knitting and weaving mills, the operating rate of DTY plants in Jiangsu and Zhejiang reached multi-year highs.

This year, based on current market understanding, some areas of knitting mills have high inventories, and with fewer orders being received, the enthusiasm for resuming operations after the holiday is average. Feedback from the Changshu and Haining areas indicates that post-holiday operating rate may be lower than that of the same period of last year. There is some differentiation in weaving grey fabric market; it is reported that the mills in Changxing received many orders before the holiday, and operations are expected to resume smoothly after the holiday. While many players hope for a peak season like last year, significant inventory preparations were made before the holiday, which may lead to actual performance falling short of market expectations, with current expectations indicating a good performance for 1-2 months. The plants in Wujiang are expected to be weaker than those in Changxing, as the fabric that sold well in the first half of last year has left a large amount of inventory this year. Overall, it is believed that the recovery progress of downstream operations after the holiday may not match last year's levels.

3. Inventory of grey fabrics is higher than the same period of last year

Last year, the weaker-than-expected domestic demand led to a limited reduction in grey fabric inventory. Additionally, in the context of low raw material prices, there was a subjective willingness among downstream enterprises, particularly those in water-jet mills, to accumulate inventory. Before the Spring Festival holiday, with continuous increases in upstream raw materials, the grey fabric inventory of downstream enterprises had the potential for appreciation. Some downstream companies were reluctant to sell off inventory at low prices to reduce stock; instead, they preferred to raise prices after the holiday to clear inventory. As a result, the grey fabric inventory in the downstream weaving sector is higher than previous years. Furthermore, according to survey made by CCFGroup, the inventory of DTY is also higher than the same period of last year in DTY plants. This is due to two reasons: first, the high operating rate of DTY plants before the holiday, and second, few fabric mills ordered before the holiday, leading to weaker-than-expected sales of DTY before the holiday.

4. Last Year's big capacity expansion in fabric manufacturing and DTY market intensifies industry competition this year

In 2024, under the trends of equipment upgrades and relocation, there was still a significant increase in fabric manufacturing capacity, especially with the addition of 66,000 new water-jet looms in just six months, and the total for the year is expected to exceed 100,000 units. Key markets to watch in the domestic textile cluster relocation include Henan, Anhui, Jiangxi, Hubei and Xinjiang.

DTY market is similarly experiencing growth. In the context of equipment upgrades and the demand for upstream and downstream integration, the increase in DTY capacity in 2024 was expected to be significantly higher than in 2023. Based on the current order trends from DTY machine suppliers, the increase in capacity is expected to remain high in 2025.

5. U.S. tariffs create uncertainty for foreign trade in the first half of 2025

The recent tariff increases have three main short-term impacts: firstly, due to the immediate implementation of tariffs, the export rush effect may be significantly weaker than market expectations before the holiday. Secondly, it is reported that previously negotiated orders with the U.S. may not allow for price adjustments, with the additional tariffs being fully borne by Chinese sellers, resulting in profit losses for suppliers. Thirdly, future new order prices will need to be renegotiated, aiming for both parties to share the costs brought by the tariffs. However, some medium-to-low end orders may be lost to other countries due to pricing disagreements, leading to a further decline in the proportion of exports to the U.S. in the short term. According to customs statistics, China's textile and clothing exports to the U.S. reached $50.96 billion in 2024, accounting for 16.9% of total exports.