Spandex market under pressure from excessive supply

The spandex market in the first quarter of 2024 saw narrow adjustments at low levels. At the beginning of the year, spandex suppliers delivered large volume, but the deliveries slowed down after the Spring Festival. The monthly production-sales ratio in the first quarter showed a marginal decline.

Spandex prices remain weak, slightly above the break-even level

In the first quarter of this year, spandex prices remained weak. Before the Spring Festival, some midstream to downstream players stocked up for one to one and a half months. After the Spring Festival, sporadic price increases occurred from spandex suppliers. However, due to significant oversupply in the BDO and spandex product segments of the industry chain, spandex prices stabilized in the short term after the holiday season. By the second half of March, with noticeable sales pressures from some new products into the market, spandex prices declined. Mainstream prices for spandex 40D ranged from 27,000 to 29,000 yuan/mt.

The cash flow for spandex 40D noticeably recovered compared to the second half of last year as PTMEG prices, a key raw material for spandex, declined following the commissioning of new capacity in Xinjiang and Inner Mongolia at the end of last year and the beginning of this year. PTMEG prices dropped by 4,900 yuan/mt from their peak in the second half of last year, while spandex prices decreased by 3,000 yuan/mt.

Capacity expansion and operating rate increase

With positive cash flows in the spandex industry and some newly added capacity coming online, spandex industry operating rate approached the median levels of the past five years. Some new unit with total capacity of 55,000 tons, came into operation in the first quarter of 2024, bringing the Chinese mainland's spandex capacity close to 1.3 million tons by March. The operating rate of the industry gradually increased to 88% in the second half of March, up 15 percentage points from the low point in January. It is expected that a few long-idle units will gradually restart in the early second quarter.

Downstream demand stable

From data in the textile and apparel industry, domestic sales growth narrowed compared to last year, returning to normal levels, while exports, albeit from a low base last year, still showed significant year-on-year growth. In the downstream weaving segment, there was active production for both domestic and overseas orders. From late January to mid-February, operating rate was low, but picked up from the end of February and into March. As of the end of March, operating rates for spandex-covered yarns and Guangdong warp knitting were around 60-70% or slightly higher, while circular knitting in Jiangsu-Zhejiang, in Guangdong, and warp knitting in Haining were around 40-50% or slightly higher.

The spandex market in 2024 started on a "low-key" note. Despite the significant new capacity in the spandex industry and the gradual increase in utilization rates to nearly 90% for existing units, there remains a clear divergence in supply and demand. It is expected that spandex prices will continue to consolidate at the bottom in the second quarter. If post-Qingming seasonal replenishment and orders for summer and winter are not smooth, the suppliers may cut production moderately to keep the price stable or reduce losses.