More spandex factories curtail production under decreasing price

At the end of 2023, spandex price has been close to the historic low before the COVID-19 pandemic, especially 20D and 30D which has hit record low. More 40D producers cut or suspended production under losses, while price of 40D is still 1500yuan/mt higher than the level at the beginning of pandemic in Aug 2020. There is still more than one month before the Lunar New Year (Feb 10), while apparently increasing spandex plants scale down or suspend production. The production curtailment was small in Nov but has been intensified by now. 

Spandex: Operating rate obviously falls at the end of year

 By the end of 2023, the spandex capacity is at 1239.5kt/year in Chinese mainland. The operating rate of spandex plants decreases to 76% in end-Dec, down by 7 percentage points over the high level in mid-Nov. By the end of Dec, among the 16 spandex companies (by group), 3 companies run at above 90% of capacity. 6 enterprises run at 70-90% of capacity. 3 factories run at below 70% of capacity. Another 4 companies suspend production. The average run rate of large spandex companies with capacity at 80kt/year or above is around 83% and that of small-and-medium-sized companies is at 50%. With weak macro environment and supply glut, the competition of homogenization products is fierce.  As a result, most spandex companies suffer apparent losses. More spandex producers will suspend or cut production in Jan 2024, not ruling out leading companies to slightly slash run rate. Two small-and-medium sized enterprises will suspend production later and some will further reduce run rate. 

PTMEG: supply/demand structure of major feedstock changes but price is still hard to stabilize

Price of spandex continues reducing at the end of 2023 with supply glut and soft feedstock cost, and falling spandex price further weighs on price of feedstock. Prices of spandex and PTMEG both head south. In Dec, increasing spandex companies cut or suspend production during the traditional off-season, with collapsing cost and long-term losses. Factoring into the accumulation of spandex inventory and the depreciation of inventory, the losses of spandex companies are still bigger than the cash flow losses. In 2024, BDO and PTMEG market will enter big capacity expansion period. Supply of the value chain is supposed to be long. Price of feedstock may be hard to stabilize in short run.  

Downstream sector: rigid demand may marginally fall later

The stocks of autumn and winter fabrics such as darlon fabrics, super-soft fabrics and fabrics for sweater and so on reduce in Dec after the weather rapidly turned colder. Fabric mills have seen eased inventory burden now. Some orders for spring chase up. With low prices of cotton yarn, PFY and NFY, some fabric mills start replenishing but are cautious in restocking oversupplied spandex and the replenishment may be delayed into Jan or Feb.

The operating rate of fabric mills is diversified in end-Dec, which slightly ascends after stocks decreased in some factories. The run rate of covered yarn mills in Zhejiang and Jiangsu and warp knitting mills in Guangdong and Haining, Zhejiang is at 60-70% or above. The run rate of covered yarn plants slightly rises recently when prices of NFY and PFY hit recent-two-year low and oil price is increasing. The operating rate of warp knitting plants is as high as around 70%, which is mainly above 70% or even at 100% in some export-oriented enterprises. The operating rate of warp knitting mills is stable in Haining, Zhejiang in end-Dec and some start hoarding up stocks. The run rate of circular knitting mills is near 50% in Zhejiang and Jiangsu. The production of some double-faced winter fabrics slightly decreases. The operating rate of lace knitting mills in Fujian, circular knitting plants in Foshan, Chaozhou and Shantou in Guangdong and braid mills in Guangdong is at 20-40%.

Because downstream demand is strongly expected to weaken, the support from the cost side remains meager and many spandex plants in Middle China and East China have suffered losses for several quarters, many small-and-medium sized spandex companies will cut or suspend production from the second half of Dec to the Spring Festival of 2024 (Feb 10), not ruling out some large companies to slightly scale down output later.