Spandex plants' operating rate hits multi-year lowest

Global economy faces big downturn pressure in 2022 with the Russia-Ukraine conflict, high inflation outside China and the spread of pandemic. The consumption of textiles and apparels was subdued worldwide. Dragged down by demand, price of spandex collapsed. Weak end-user and spandex market further weighed on PTMEG and BDO market. Some spandex suppliers chose to slash run rate to avert risk and lower losses with pressure from the cost and demand. By Aug 9, the operating rate of spandex plants has almost decreased to the 15-year lowest, only slightly higher than that in 2008 after the outbreak of subprime mortgage crisis.

The average operating rate of spandex plants was at 87.2% in the first half of 2022, down 6.6 percentage points compared with the second half of 2021 and down 8.3 percentage points on annual basis. The operating rate was high in the first half of Jul but started plunging in the second half of Jul, with the average level at 69.6% in Jul, down by 13.4 percentage points over Jun. In early-Aug, the operation rate of spandex plants kept falling with plummeting cost, sluggish demand and high but greatly depreciated inventory, which was at 51% by Aug 9, the lowest since mid-Feb, 2009.

Among the 17 spandex companies in Chinese mainland, no enterprises ran at 90% of capacity or above. 4 companies ran at 70-90% of capacity. 13 factories ran at below 70% of capacity. Two companies were offline now. Based on the scale of companies, companies with 70kt/year of capacity or above ran at 51% of capacity, those with 30-40kt/year of capacity ran at 56% of capacity and those with capacity below 20kt/year saw above 30% of capacity. In terms of the distribution of spandex companies, plants in East China and Midwest China obviously scaled down output. The average run rate of plants was at 53% in East China and at 48% in Midwest China. Demand for spandex remained meager. Suppliers discounted price while stocks remained high. According to their PTMEG sourcing channel, the operation rate of spandex plants integrated with PTMEG ran at 69% of capacity on average, while that of factories without PTMEG integration ran at 47% of capacity.

Why does the run rate of spandex fall to multi-year lowest? It is related with global economy downturn, high inflation outside China, capacity expansion of the whole value chain and soft demand for textiles and apparels worldwide. The growth rate of BDO-PTMEG-Spandex capacity is all expected to be near 20% in 2022. Spandex market turns to be buyers'  market from sellers' market. Upstream BDO and PTMEG market is also dragged down by weak end-user and spandex market. Price of BDO and PTMEG accelerates falling, which further drag down spandex price. In short run, such weak transmission is not estimated to stop. Whether spandex plants will resume operation need to observe orders for textiles and apparels, the inventory change of spandex suppliers and feedstock price trend.

In addition, some plants' run rate is affected by the summer power rationing in East China and the upgrade of units, such as technology upgrade in old units, the steam pipe renovation and sewage pipeline treatment.