Spandex: production curtailment to exaggerate in July

In the first half of 2022, demand for spandex saw negative growth while supply soared. Spandex price has been halved from the high level in 2021. Spandex 40D turned to under heavy losses in Q2 2022 from having rich profit in 2021. Stocks of spandex hit historic high. Obviously more spandex factories are estimated to slash or suspend production in Jul due to the pressure from losses and sales.

With dropping price, the losses of spandex 40D further worsened based on spot raw material prices from Q2, which have kicked historic high in end-Q2, far higher than that in the second half of 2019 and Q1 2020 under weakness. In fact, spandex producers saw bigger deficit as their inventory was depreciated.

The inventory of spandex surged to be high by the middle of 2022, which exceeded 45 days by end-Jun, even near two months in some factories. Overall inventory of spandex has hit historic high after large companies expanded capacity. Downstream fabric mills saw inadequate orders in late-Jun and were cautious in hoarding up stocks of autumn and winter with slipping price of polyester fiber, nylon fiber, spandex, cotton and cotton yarn. Some fabric mills increased cutting or suspending production. Players hold cautious mindset toward sales of spandex in Jul during the traditional off-season.

More production is estimated to be cut or suspended in Jul on spandex market due to soft demand and more losses, which will weigh on upstream feedstock market. Bearish view is held toward the spandex value chain. The operating rate of spandex plants declined to 82% by end-Jun. Plants with 70kt/year of capacity or above ran at around 87% of capacity, those with 30-40kt/year of capacity ran at around 75% of capacity and that of small factories with capacity at 200kt/year or below ran at around 40% of capacity. Spandex factories in Middle and West China ran at above 90% of capacity and that of units in East China ran at around 70% of capacity with pressure from losses. More spandex plants will increase reducing or suspending production in Jul in East China. The operating rate of spandex plants is estimated to fall by around 10 percentage points to below 75% in Jul. The later production adjustment of spandex companies should be concerned.