Diversified PFY and spandex market: significant improvement VS in predicament

Entering December, the PFY and spandex are experiencing significant polarization. The spandex market has notable gaps in production and sales, contrasting sharply with the periodic surges in sales ratio of polyester. The spandex inventory continues to rise at a high level, while PFY inventory has decreased from approximately 20 days to just one week. Last weekend (December 15-16), following an unexpected surge in PFY sales, the overall purchasing atmosphere for spandex has remained weak this week. Most buyers are primarily purchasing out of necessity, while some local distributors are starting to stock up slightly as they complete year-end payments. The gap in production and sales in the spandex industry remains apparent. The increase in PFY sales is closely related to lower prices and stabilization of polymerization costs. So, what is the current position of spandex prices and the cost side?

Spandex prices are at historically low levels

This year, spandex prices have repeatedly hit new lows, with mainstream 40D spandex prices even falling below the prices from April 2020 during the negative oil price era by 4,500yuan/mt, down to 24,000yuan/mt. In fact, some manufacturers in the industry chain face significant inventory pressure, with certain 40D supplies priced at 22,000-22,500yuan/mt. The prices of spandex are at absolute historical lows, and the extent of price reductions has gradually narrowed as enters the fourth quarter. PFY prices dropped below the previous low at the end of 2022 by mid-December, and increased downstream restocking has been a major driver behind the unexpectedly high sales of PFY. The quantity of PFY being stocked varies, with some stocks used before the Lunar New Year holiday expected to last until the end of December or early January and others until mid-January. In addition to pre-holiday usage, some factories are stocking for use after the Lunar New Year holiday, but widespread replenishment has yet to begin.

Spandex feedstock cost may inch down from low level

Looking at the main raw material cost for spandex production, they are currently at low levels not seen in years, with BDO in the upstream of the industry chain experiencing a short-term rebound in October, which pushed PTMEG prices up slightly in November. However, the follow-up increases have been challenging, with negotiations becoming stagnant; thus, the cost of the main raw materials for spandex has seen a slight increase compared to October, while the prices in December are showing pressure for a potential decline. Spandex downstream purchasers remain cautious in their procurement. The production-sales gap in the spandex industry remains significant, and some spandex plants are considering further production cuts, which could have a negative feedback effect on the price trends of PTMEG. Hiking PFY is closely related with gradually stabilizing polymerization cost since November.

Supply and demand structure of spandex and PFY apparently diversified

For spandex and PFY, both of which are used in the textile and apparel fields, the expected growth rate of apparent demand in 2024 is around 10%, yet there are substantial discrepancies on the supply side. Moreover, the speculative nature of polyester filament yarn remains better than that of spandex. Back in 2021, the spandex industry experienced a high prosperity cycle; however, it soon fell into a rapid expansion phase. From 2021 to 2024, the annual capacity growth rate of spandex industry reached about 12.1% in Chinese mainland, far exceeding the growth rate of demand. Meanwhile, during these years, the prices of the BDO-PTMEG-spandex industry chain have shown a downward spiral. Downstream fabric manufacturing companies, in consideration of cost control and risk avoidance, primarily purchase based on necessity, exhibiting extreme caution in restocking.

Consequently, even with a demand increase of over 10%, it is still challenging to keep up with the rapid expansion of capacity. In this context of supply-demand imbalance, some spandex manufacturers have had to frequently adjust operating rate to manage inventory levels and improve production-sales rates, especially smaller companies that face relatively higher costs and have lost some price-sensitive customers. With the added pressure of losses and tight finances, these companies show more significant adjustments in operating rate. Statistics indicated that in 2024, the average operating rate in the spandex industry is expected to be the lowest among the three products-PFY, NFY and spandex-at around 84%, while as of the time of writing, the spandex industry's operating rate is at 79%. In contrast, the annual capacity increase for PFY market is minimal at only 1.7% in 2024, with a relatively healthy supply-demand structure, leading to an average operating rate of PFY plants at above 90%.

Looking ahead, as spandex manufacturers collect some receivables before the New Year and adjust operating rate partially before the Spring Festival, coupled with prices at low levels and limited adjustment space, spandex inventory is expected to shift slightly to downstream before the Spring Festival. However, overall, the spandex market still faces the challenge of overcapacity, and a recovery in the industry's structural adjustment and market supply-demand balance will take time.