Shenwan Hongyuan released a research report stating that geopolitical events impacted the textile and apparel chain's demand in Q2 2026, but current dye industry inventory levels are extremely low. Restocking is expected to commence after August, providing a significant short-term demand boost. The dye market has been in a bottoming phase for years, but the overall supply-demand balance remains loose. However, stress tests have greatly increased confidence, suggesting the industry structure could improve long-term, supporting a gradual rise in the pricing floor. The report indicates that companies with core intermediate production capabilities, scale, and strong brand advantages are likely to benefit first.
Demand Side: Steady Growth for Dyes, Downstream Customers Less Sensitive to Price Hikes
As a key raw material for printing and dyeing, a core link in the textile chain, dye demand follows the growth of downstream fabric and finished textile orders, growing at a relatively stable pace. Dyes account for a very low proportion of the cost in fabrics and finished garments, making downstream buyers less sensitive to dye price increases. Consequently, price hikes in dyes have almost no impact on production and sales volumes across the entire chain. In fact, downstream printing and dyeing factories and traders often welcome price increases to boost their own profits or market share. Geopolitical events disrupted the textile chain's demand in Q2 2026, and with current inventories extremely low, restocking is expected to begin after August, providing a notable short-term demand boost.
Supply Side: Higher Industry Concentration Due to Tighter Environment and Safety Rules, but Overall Supply-Demand Balance Remains Loose
China's dye production accounts for approximately 70%-75% of the world's total, highlighting its strong industrial edge. In recent years, national industrial policy guidance and stricter environmental regulations have increased industry concentration. Leading companies, leveraging their scale, capital, and technology advantages, have expanded their market share, while small and medium-sized enterprises (SMEs) and outdated capacity have been phased out. Currently, the disperse dye market is primarily dominated by three companies: Zhejiang Longsheng, Runtu Co., Ltd., and Jihua Group, which account for 60% of national capacity (with a higher actual output share). The top five players in the reactive dye market control about 76% of national capacity. After the last cycle ended in 2019, the dye market has been in a bottoming phase for years, but the overall supply-demand situation remains loose.
Diverse Intermediates, Leading Players See Volume and Profit Growth
Reductants, hexachloro/hexabromo compounds, meta-phenylenediamine, and H-acid are core dye intermediates with excellent supply structures, largely controlled by leading companies. Among these, the reductant market has the best structure, with only Zhejiang Longsheng, Runtu Co., Ltd., and Ningxia Zhongshengxin having production capacity. This year, coordination among leading players has been established, driving the price of reductants sharply upward. Other intermediates have followed suit, collectively pushing dye prices upward from the bottom, signaling a turning point. In this cycle, SMEs lacking core intermediate production capabilities face significantly increased pressure and are forced to give up market share. Leading companies are capitalizing on this by gaining share and enhancing their pricing power, allowing them to move beyond cost-based pricing and capture excess profits in the dye segment.
Stress Tests Boost Confidence Significantly, Improving Long-Term Structure and Supporting Higher Floor
Even amid the impact of Middle East conflicts, which caused significant negative feedback in the textile and apparel chain's demand in Q2 2026 and a sharp decline in dye industry shipments, the price of reductants remained stable at RMB 100,000 per ton. This demonstrates the determination and coordination among leading players in raising prices. Looking further ahead, new capacity approvals for reductants are limited, and the market structure is expected to remain stable. The industry's logic of "price comes first, volume follows" continues to play out, potentially supporting a gradual upward trend in the dye price floor.
Risk Factors
1) Volatility in raw material prices; 2) Downstream demand falling short of expectations; 3) Intensifying competition in the intermediate market.