Q1 spandex market review and Q2 outlook

Supply of spandex turned to be longer in the first quarter of 2022 after being tight in 2021. Most spandex plants kept running at high capacity and new units successively started operation. Buyers mainly purchased spandex on a need-to-basis and showed apparently lower buying interest compared with the same period of last year. The divergence between supply and demand escalated in Q1 on spandex market. Price of spandex shivered weakly.

Capacity: apparently increased on the quarter and on the year

The spandex capacity has reached 1014.5kt/year at the end of first quarter in 2022, up by 4.1% on the quarter and 19.1% on the year respectively.

Price: declined weakly

Price of spandex extended lower since Q4 2021 with cautious downstream procurement and increasing supply. Price of 20D and 30D was weak with inadequate downstream orders for spring and summer fabrics and meager cash flow. 35D-140D saw apparently shrinking cash flow and the cash flow narrowed to near the break-even line after price rapidly fell before the Lunar Chinese New Year holiday, while prices still inched down after holiday. Prices of 35D and other coarse denier spandex slightly rallied in Mar after replenishment grew in end-Feb when dealers restocked and players expected spandex price to increase with the coming of traditional peak season.

Operation: operating rate fell but inventory piled up

The average operating rate of spandex plants declined to around 88.1% in Q1, down by 3.2 percentage points compared with Q4 2021 and 6.9 percentage points c on annual basis respectively. Some spandex plants cut more production near the Lunar New Year’s holiday with rapidly reducing spandex price and some plants in North China suspended production affected by the XXIV Olympic Winter Games in Beijing. The production of Hyosung Quzhou was impacted by the worse spread of pandemic after Mar.

Stocks of spandex were above 35 days in Q1, apparently up compared with Q4 2021 and on the year. The highest level in Q1 appeared near the Lantern Festival (Feb 15) while spandex inventory obviously decreased in end-Feb/early-Mar when spandex plants raised price and downstream players expected the coming of peak season. Suppliers saw mounting stocks in late-Mar when the pandemic worsened in some regions of China, the logistics were restricted amid the pandemic and buyers focused on consuming spandex prepared earlier in late-Mar.

Cash flow: substantially shrunk 

The average cash flow of spandex 40D was around 2,000yuan/mt in Q1 2022, apparently down by 88% quarter-on-quarter and 83% year-on-year respectively. Price of major raw material PTMEG curved a "V"-shape trend, which was weak before the Spring Festival holiday and rallied in Mar after spandex plants that suspended production recovered operation and new spandex units commissioned operation. Price of another raw material MMDI slightly increased in Q1 when supply of MMDI reduced affected by the turnaround and demand improved near the Spring Festival. However, spandex price extended lower with weak market fundamentals. The cash flow of spandex 40D quickly dropped.

Q2 outlook

Capacity expansion on spandex market will peak in 2022 after experiencing prosperous cycle. There will be many new units to be launched in Q2. Supply of spandex may extend longer. As for the demand side, uncertainty exists as the pandemic will impact the production, consumption and logistics. The tempo of traditional peak season and slack season has been disrupted by the COVID-19 pandemic. The Asian Games will be held at the end of Q3 in Hangzhou, Zhejiang. Downstream production is expected to apparently recover after the spread of pandemic is eased. Some demand in Q3 may be pulled forward. Price of spandex 20D and 30D is estimated to extend lower after new units started production while downstream demand is anticipated to be hard to rise. The price spread between 20D/30D and 40D will gradually narrow. Price of spandex 40D and medium-to-coarse denier ones may be near the cost line. Some plants in East China may cut production with pressure from profitability and stocks.