With narrower supply/demand divergence, spandex market to be stable in short run

In late-September, a series of domestic macroeconomic policies were introduced, including cuts in reserve requirements and interest rates, measures to stimulate consumption and the real estate sector, and initiatives to boost the capital market, leading to a recovery in market confidence. The spandex industry chain has been in a prolonged downturn and, coinciding with the warming of macroeconomic policies and the arrival of the traditional peak season for demand, sales of spandex sped up. Some buyers replenished spandex according to orders. Around 20% of spandex inventory among suppliers has been transferred to downstream sector.

Supply: operating rate down to above 80%

The performance of peak season was not good in September. Burdened by high inventory and heavy losses, the operating rate of spandex plants apparently descended, down to near 83% now from 87% in early-September. Among 16 spandex companies in Chinese mainland, 7 companies ran at 90% of capacity or above; 2 enterprises ran at 70-90% of capacity; 5 companies ran at 20-70% of capacity; 2 companies are offline. The operating rate was obviously diversified between large companies and small-and medium-sized enterprises. The operating rate of large companies with capacity at 80kt/year or above decreased to around 89% and that of small-and-medium sized companies reduced to near 59%. Some units that cut or suspended production before delayed the restarting time. The startup of some new units are affected by high inventory and the pressure from losses.

Demand: operating rate of downstream fabric mills apparently ascends

Oil price spiked by around $10 during the National Day holiday mainly due to escalated tension in the Middle East, and it retreated from high level after holiday but was still obviously higher compared with pre-holiday level. Price of PFY rapidly increased after the National Day holiday boosted by surging oil price. Sales of downstream thick fabrics including rib fabrics, dralon fabrics and fabrics for sweater sped up after the weather cooled down. Fabric mills saw some new orders. The operating rate of fabric mills notably rose by 3.6 percentage points over end-September to 55.9%. The improvement in knitting fabric market was more obvious. Rigid demand for spandex from fabric mills grew. Some buyers replenished 15-30 days of spandex according to orders, expecting spandex price to touch bottom. Current mainstream price of spandex 40D was at 23500-25500yuan/mt, delivered, 45 days of payment days, lower at 23000yuan/mt by cash for large orders, which was new low in recent 20 years. Some buyers started restocking when the low price appeared and downstream peak season emerged.

The divergence between supply and demand has been narrowed on spandex market in recent half a month. Market confidence has been recovered somewhat. The inventory of spandex decreased by 11 days to around 52 days over end-September, down by near 17.4%.

Spandex market fundamentals have recovered recently. Spandex suppliers may hold price stable and be active in selling and collecting payment in short run. In long run, oversupply may remain apparent on spandex industrial chain. Many new units are scheduled to start production in Q4 2024 and 2025 on BDO-PTMEG-spandex value chain. If there are no obvious stimulus policies, only depending on growing demand, spandex price is expected to shiver, hard to improve.