Spandex capacity growth peaks in 2024, competition continues

Spandex prices have been undergoing downward adjustments for nearly three years since the previous cycle of high prosperity. From the beginning of 2022 to April 2024, only a few companies in the industry have been profitable, with the majority facing losses. However, the overall industry losses have marginally improved over the past two years. How will the expansion speed of spandex production capacity be in 2024, and when will the growth rate of production capacity slow down in the future?

Cash flow: Marginal improvement in losses

In the past five years, the spandex industry experienced a significant increase in profits in 2020-2021 due to the mask outbreak during the pandemic. However, in 2022, the industry suffered deep losses as inventories depreciated significantly. Although there was a reduction in losses in 2023, widespread losses persisted. From the beginning of 2024 to date, the average cash flow of 40D spandex has somewhat recovered compared to the second half of 2023, but it is still lower than the first quarter of the previous year. Due to the evident oversupply in the industry in 2024, it may be challenging for industry profits to see significant improvement. Most companies are expected to face significant operational pressures, and internal competition within the industry is likely to continue.

Spandex capacity growth in 2024 reaches its peak, with a decline expected in 2025

From 2019 to 2023, Chinese spandex capacity growth was first slowing down and then expanding again. The average annual growth rate of spandex capacity was 6.6% from 2018 to 2020, with the growth rate hitting a historical low of 2.6% in 2020. As the industry entered a high cycle of prosperity in 2021, the marginal growth rate of production capacity increased. By the end of 2023, spandex production capacity in Chinese mainland had reached 1.2395 million tons/year, a year-on-year increase of 13.0%.

In 2024, China will see significant additions to spandex capacity. In the first quarter, new capacity of 55,000 tons was commissioned, including 35,000 tons from Zhuji Huahai and 20,000 tons from Xinxiang Chemical Fiber. In the second, third, and fourth quarters, new capacities including Zhuji Huahai 50,000 tons, Ningxia Taihe 17,000 tons, Huafon Chemical 150,000 tons, and Hengshen 30,000 tons will start up gradually. It is estimated that by the end of 2024, the industry's new capacity will range from 302,000 to 1.5415 million tons/year, with a growth rate of 24.4%, marking the highest level in past years. The growth rate of capacity reaches its peak as most companies in the spandex industry have struggled to make profits in the past three years and are undergoing industry consolidation and elimination cycles. Some earlier planned facilities have experienced slight delays in actual commissioning, with a few projects being canceled.

In 2025, the growth rate of spandex capacity in China is expected to slow down. The new capacity in 2025 is expected to focus on companies like Hyosung, Huafon, Highsun, and Hangzhou Shu'erzi, with an estimated capacity of 132,000 tons/year. By the end of 2025, the capacity growth rate is expected to slow down to 8.6%, reaching 1.6735 million tons.

Central and Western China's share of capacity rises to over 50%

With the shift of the spandex industry to central and western regions of China, by the end of 2023, the share of production capacity in central and western China exceeded 50% for the first time. It is projected that by the end of 2025, the proportion of central and western facilities will reach 54%, an increase of over 30% from 2018. The new, efficient, and low-cost facilities in the central and western regions show a significant cost advantage compared to those in the eastern regions. Enterprises in the eastern regions still face significant operational pressures, and developments such as the reduction of shutdowns and exits of industry facilities are being closely monitored.

Industry concentration is expected to reach 80%

Since the fourth quarter of 2021, mainland China's new production capacity has mainly been concentrated in leading enterprises, with minimal new capacity additions from medium-sized enterprises. As the leading companies in the industry continue to expand their capacity, the concentration of the top 5 companies in spandex industry continues to increase. In 2018, the top 5 spandex factories in China accounted for 62% of the production capacity, which increased to 69% by 2020. It is projected that by the end of the 14th Five-Year Plan period (2021-2025), the concentration of the top 5 spandex factories will further increase to over 80%.