Highlight:

*Downstream market under holiday mood, with low PFY stocks at hand

* Downstream plants will not resume much until after the Lantern Festival (March 3), with holiday schedule for around 30 days

*PFY plants may see mounting inventory after Spring Festival holiday and the inventory may face the risk of depreciation once capital support fades and the industrial chain reverts to supply-demand fundamentals

The downstream plants in Zhejiang and Jiangsu have been under holiday mood now. Some DTY plants and fabric mills have shut down for Spring Festival holiday, and almost all the factories will suspend production from this weekend.

Operating rate of DTY plants fell to 17%in Zhejiang and Jiangsu now, around 40% in Xiaoshan and Shaoxing, and at around 10-20% in Taicang, Cixi, and Changxing, with all the plants to suspend production from this weekend. Almost all DTY plants have started holiday in Changshu. Operating rate of filament grey fabric plants decreased to 9%in Zhejiang and Jiangsu: around 10-20% for water-jet mills in Wujiang and Changxing, and below 10% in North Jiangsu; the run rate of warp knitting plants was at 10-20% in Haining and above 20% in Changshu, and the plants in Changshu have started holiday. The run rate of circular knitting plants was below 10% in Xiaoshan and Shaoxing from Zhejiang and the plants have begun holiday in Jiangsu. Operating rate of printing and dyeing plants reduced to 45% in Zhejiang and Jiangsu: around 50% in Wujiang, Xiaoshan and Shaoxing, and around 20% in North Jiangsu and Haining. Plants in Changxing and Changshu have suspended production in Changxing. The holiday schedule of dyeing mills is as flowing: near Feb 7 in Wujiang, near Feb 9-10 in Xiaoshan and Shaoxing, near Feb 6 in Changxing, around 60-70% in Haining and around Feb 10 in North Jiangsu.

Compared with the past two years (2024-2025), the operating rate of fabric mills has dropped to below 30% about 5 days earlier before this year's Spring Festival. Given labor constraints, it is unlikely to rebound much earlier than in previous years after the holiday; the operating rate is expected to recover to above 50% at the earliest after the Lantern Festival (March 3). Therefore, for more than 30 days, PFY plants will face a stagnation in pickup, with inventories all shifting back to upstream PFY factories.

Unlike previous years ahead of the Spring Festival, the pressure on PFY factories' inventories is not high for now. However, if there is no significant pick-up in sales ratio next week, the inventories of these PFY factories will exceed those of all the same periods except 2022.

Meanwhile, raw material stockpiling at the downstream field remains relatively low, currently standing at only around 12 days-far below the pre-Spring Festival levels of previous years. In contrast, finished grey fabric inventories are relatively high, mainly due to the rapid expansion of woven production capacity in recent years, which has resulted in insufficient destocking before the Spring Festival and pushed up overall grey fabric inventories. In fact, inventories of knitted fabrics (warp knitting and circular knitting) are not high. Consequently, some factories currently have no stockpiling plans for the post-holiday period; a small number are preparing to operate for about 10-15 days after holiday, and very few are stocking raw materials for the Spring Festival for around 20-30 days.

For PFY factories, although the overall operating rate in Q1 2026 (around the Spring Festival) is lower than in previous years, there is a certainty of inventory accumulation after the holiday-only the magnitude of accumulation will vary. Regarding the reality of inventory build-up in February: offering pre-holiday discounts will directly erode current profitability and may not drive a substantial increase in sales. Post-holiday, there is also uncertainty over raw material price fluctuations: the pre-holiday rise in raw material prices was largely driven by bullish capital. The polyester polymerization rate will remain low in February, and the upstream PTA and MEG may also face inventory accumulation after the holiday. Once capital support fades and the industrial chain reverts to supply-demand fundamentals, the risk of inventory depreciation may emerge.