Spandex market may be pressed later despite of being resilient

Price of spandex increased more than that of other raw materials of textiles and apparels since Sep. The increment of spandex 40D has been at 5,000yuan/mt or 16.4% and price of varieties with tight supply rose even more. The operating rate of spandex plants has ascended to above 80%. New spandex units are active in starting operation. Demand from fabric mills may marginally weaken after mid-Nov. In addition, the influence of non-industrial factors on feedstock market is expected to diminish gradually. Spandex industry is likely to be mainly stimulated by supply and demand again and price of spandex is even likely to return to the downward streak.

Feedstock: strong support from cost side

Major raw materials of spandex touched bottom in end-Aug and early-Sep and rose obviously later. BDO plants suffered great losses and ran at low capacity during the first part of Q3, while demand grew after Sep and the spread of pandemic in Northwest China impacted delivery. Price of BDO apparently advanced. Under such circumstance, price of PTMEG also surged and saw bigger increment. Price of MMDI soared too. Major feedstock cost of spandex hiked by 4,700yuan/mt compared with the lowest level in Q3. Spandex suppliers were active sellers in Sep and raised price in mid-Oct with tight supply. Price of spandex spiked consistent with the feedstock market while the cash flow of spandex did not recover much.

Strong supply & weak demand

Spandex market saw tight balance now, while increasing supply imposed more pressure on the price. The operating rate of spandex plants has rose to above 80% and the new units are active in starting production. However, demand is expected to fall from high level later. Spandex inventory has been greatly transferred to downstream market, while many downstream buyers turned to consume spandex prepared before. Distributors focused on selling with bigger price increment. Spandex suppliers are expected to concentrate on selling with high production cost to lower the inventory accumulation.

In the face of high inflationary pressure and an uncertain economic situation, downstream market was weaker. In Jan-Sep, 2022, online retail sales nationwide totaled 9.5884 trillion yuan, up 4.0% from a year earlier, according to the latest statistics from the National Bureau of Statistics. Among them, the online retail sales of physical goods totaled 8.2374 trillion yuan, up 6.1%, accounting for 25.7% of the total retail sales of social consumer goods. Among the online retail sales of physical goods, food, clothing and other goods increased by 15.6%, 4.7% and 5.2%, respectively. Clothing saw the lowest year-on-year growth rate among the online retail sales of food, clothing and others.

In Jan-Sep, 2022, the absolute sales value of clothing, shoes, hats and knitted textiles was 927.3 billion yuan, a negative growth of 4.0% compared with the same period last year, which was the nominal growth rate without deducting the price factor. Considering the change in average price of textiles and apparels in Jan-Sep, the actual sales were even weaker. According to the data from CCFGroup, prices of most raw materials of textiles and apparels rose by 2-21% on the year in Jan-Sep, 2022, except for spandex saw 30% of reduction on the year. Prices of polyester filament yarn and cotton increased by 11% and 21% respectively on annual basis.

As for the turnover of fabrics in China Textile City, the overall turnover of fabrics and the turnover of cotton/spandex elastic fabric and chemical fiber elastic fabric was the second lowest in recent five years in Jan-Sep, 2022, down by 6.5%, 5.8% and 6.0% on the year respectively.

Operating rate of downstream fabric mills apparently advanced in Sep and Oct, slanting low in recent five years. The run rate of circular knitting plants was near 50% in Zhejiang and Jiangsu, that of circular knitting plants in Chaozhou and Shantou from Guangdong and Quanzhou from Fujian, covered yarn plants, warp knitting mills, braid mills producers and diaper factories was at 50-80% and that of lace knitting plants in Fujian and circular knitting plants in Foshan of Guangdong was around 30%. The rigid demand for spandex from knitted thick fabric plants and short plush producers sustained big. Most downstream buyers’ spandex inventory could guarantee production until H1 Nov.

Remark: above run rate is the average run rate of conventional covered yarn plants in Zhejiang, circular knitting plants in Guangdong, Zhejiang and Jiangsu, warp knitting plants in Guangdong and lace mills in Fujian.

In summary, spandex market can be described as being tight to balanced now. The low inventory of suppliers is still supportive to price, while the pressure from marginally increasing supply intensifies after the run rate of spandex plants ascended to above 80% and new units are active in commissioning production. Demand for spandex may recede later. The price trend of BDO and PTMEG should be noted too. Fabric mills witness moderate orders now. Some downstream buyers turn to consume spandex prepared before. If orders for fabrics lack strong support, price of spandex may be firm in short run but soften later with bigger divergence between supply and demand. In other words, price of spandex is expected to enjoy resilience in short term, with price of some resources expected to fall, but may be under pressure in medium run.