Spandex price expected to advance in September with cost support
Price of major feedstock of spandex, PTMEG and MMDI, was firm in Q3 2023 and may rise further in Sep supported by tight supply. Spandex suppliers revised up offers twice to reduce losses in Jun-Aug, while as downstream orders were scant during the traditional off season, price of spandex advanced slowly. Price of low-end spandex slightly moved up while that of medium-to-high end resources was stable, only slightly climbing up in some regions.
Cost side: strong support
Supply of PTMEG for spandex remained tight in Q3 and the supply crunch tightened further in Aug as some units had turnaround. Although downstream market was difficulty in transferring cost, price of PTMEG slightly rose bolstered by good supply and demand. The settlement price of PTMEG in Aug was mainly implemented at around 20000yuan/mt, with some slightly higher near 20500yuan/mt. New PTMEG units are under trial production, while demand is stable and robust. Supply of PTMEG is estimated to remain tight in short run and price is anticipated to keep firm. Price of MMDI rose substantially in Aug impacted by the turnaround, with spot goods up by 3800yuan/mt over early-Q3. However, after supply recovered in some plants and downstream market met resistance in transferring cost, price of MMDI started reducing from late-Aug. Price of major raw materials of spandex both rose in Q3 while that of spandex 40D advanced slowly. The cash flow of spandex 40D continued decreasing and most spandex plants have seen apparent losses.
Demand: darkest time has been passed and performance in Sep deserves anticipation
In 2023, the macro environment has become more complex. With high inflation, the demand for textile and apparel in Europe and the United States has weakened. In addition, some previous inventory was still being consumed, which has led to a decrease in orders placed to textile and apparel companies in Vietnam and China. Looking at the foreign trade data, it could be seen that China's textile and clothing exports have decreased by more than 10% for three consecutive months, with a widening negative trend. From Jan to Jul 2023, the cumulative export of textiles and clothing amounted to US$169.79 billion, a decrease of 10%. Among them, textile exports scored at US$78.85 billion, down by 11.9%, and clothing exports approached US$90.94 billion, a decrease of 8.3%. Although the overall export growth rate declined this year, there were still certain differences in structure. Synthetic fiber yarn and fabric have performed well in the yarn sector, while the clothing sector was relatively weak. From the angle of development trend, apart from disruptions of PFY exports to India due to policy issue, there was a certain seasonal rebound in clothing exports. However, the year-on-year performance remained relatively weak and there was no clear improvement yet.
From Jan to Jul 2023, the total retail sales of consumer goods in China reached 26.4348 trillion yuan, a year-on-year increase of 7.3%. Among them, the retail sales of consumer goods excluding automobiles amounted to 23.8083 trillion yuan, with a growth rate of 7.5%. The cumulative retail sales of clothing, shoes, hats, knitwear and textiles were 777.6 billion yuan in Jan-Jul, 2023, a year-on-year increase of 11.4%. The growth rate of retail sales in the textile and apparel industry outperformed the overall retail sales growth, but it still fell short of expectations in the downward economic trend. In Jan-Jul, 2023, the national online retail sales reached 8.3097 trillion yuan, up by 12.5% on annual basis. Among them, the online retail sales of physical goods reached 6.9856 trillion yuan, with a growth rate of 10.0%, accounting for 26.4% of the total retail sales of consumer goods. Among the online retail sales of physical goods, the growth rates of food, clothing, and other goods were 8.7%, 12.0%, and 9.5% respectively.
In the downstream fabric manufacturing market, in the first half of 2023, sales of yoga clothing, sun protection clothing, arm sleeves, and sports products drove sales of spandex. In Aug, there was an increase in the production and shipment of woven covered yarn, dralon, warm woolen fabric, super soft and other warming products. Although the production of sports fabrics such as yoga clothing was not as good as before, it performed better than other products such as single-faced milk yarn. Operating rate of fabric mills slightly rose now, with that of circular knitting mills in Zhejiang, Jiangsu and Chaozhou and Shantou from Guangdong at 40-50%, that of circular knitting plants in Guangdong at 30%, and that of covered yarn mills in Zhejiang and Jiangsu and warp knitting plants in Haining and Guangdong at 60-70% and above. Downstream dealers increased restocking spandex, mainly at one month or slightly above. Some fabric mills also replenished. Some purchased spandex when price was low. Currently, most textile mills are not confident about the peak season. Although some orders chase up, faced with hard-to-rise price and supply glut of most fabric manufacturing machine, it is still difficult to make money. Actually, most suffer losses based on spot spandex price.
Supply: lower than 80% of operating rate and medium inventory
After many new spandex plants intensively started operation in the first half of 2023 but supply of feedstock was tight after the startup of new PTMEG units is delayed, the launch of some new spandex units is slightly postponed. Most spandex suppliers have suffered losses for long. Some units in East China and Middle China cut production. The operating rate of spandex plants was lower than 80% since Q3 2023. Downstream buyers slightly replenished in end-Q2 and early-Q3. Therefore, the stocks of spandex were apparently transferred to downstream sector. Current spandex inventory is above one month among suppliers and is mainly around one month or above in dealers. The spandex inventory of fabric mills is obviously diversified, mainly at 10-40 days, and the inventory in covered yarn mills and warp knitting plants is higher than that in circular knitting mills. Spandex suppliers intend to raise price, while the transfer of inventory to downstream sector may lower the increment of spandex price in traditional peak season in Sep and Oct.
In summary, after spandex price declined for long and most spandex plants suffered losses, the fierce competition on spandex market may marginally weaken. In addition, spandex plants are expected to encounter bigger operation pressure when price of PTMEG is estimated to be firm in short run. Spandex suppliers may continue raising price in Sep while the actual increment may be smaller when downstream market is in dilemma, supply of spandex exceeds demand and the inventory of spandex is transferred to downstream market.
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