Will spandex market warm up?

The operating rate of fabric mills slightly increased in the first half of Dec. Orders for some circular knitted double-faced fabrics chased up slightly. Sales of spandex for the earband of mask improved. Apparently more spandex plants cut or suspended production from late-Oct to Nov due to soft demand and collapsing cost. Current operating rate of spandex plants has fallen to below 60%. With eased pandemic prevention and control policies, price of some raw materials of textiles and apparels started increasing recently. Players held slightly recovering anticipation toward demand for textiles and apparels in the first half of 2023. Will spandex market warm up?

Operating rate: slanting low at the end of year

Spandex capacity was at 1121.5kt/year in Chinese mainland now, up by 15.4% on annual basis. The yearly run rate of spandex producers will obviously descend. Current operating rate of spandex plants has fallen by 24 percentage points over early-Q4 to 59%. With subdued domestic and export demand, spandex companies controlled run rate at the end of year. On one hand, some new spandex units from leading companies cut or suspended production with muted demand. On the other hand, some leading companies slashed run rate or suspended production due to stagnated sales of some varieties. Apparently more small and medium-sized companies curtailed or stopped production. The inventory of spandex was substantially depreciated in end-Q2 and Q3. Spandex producers controlled the inventory of finished goods and feedstock when price of PTMEG kept reducing. Most purchased PTMEG to cover the pressing demand.

Operating rate of spandex plants has been low now. Some factories who did not cut operation earlier will scale down or suspend production after New Year's Day holiday. However, some units who have slashed production earlier may resume operation after inventory dropped. The run rate of spandex plants may have limited downward space later.

Demand: rigid demand grows and replenishment has potential to improve

The operating rate of fabric mills was low now but has increased slightly in some regions with eased pandemic prevention and control policy. Rush orders for some circular knitted rib fabrics grew and the production of single-faced LYCRA fabric and cotton/spandex air covered fabric also increased. The operating rate of warp knitting plants slightly rose, especially warp knitting plants in Haining with 10 percentage points of run rate increment. Demand for KN95 and N95 mask surged recently with alleviated pandemic prevention and control policy, which stimulated sales of spandex 70-280D. Ordinary mask still mainly used spandex 35D-70D with not very high quality, but some turned to adopt quality spandex after the inventory of spandex with inferior quality was lowered.

Remark: above run rate is the average run rate of conventional covered yarn plants in Zhejiang, circular knitting plants in Guangdong, Zhejiang and Jiangsu, warp knitting plants in Guangdong and lace mills in Fujian.

Market players have shown apparently recovering mindset with eased pandemic prevention and control policy, having “strong” expectation from holding weak mindset. Fabric mills will gradually start Spring Festival holiday from late-Dec to early-Jan. Rigid demand for spandex will be muted. As the COVID infection peak is approaching in Zhejiang and Jiangsu, the production of fabric mills may be impacted to a certain extent. Some mills may be forced to shut down for holiday in advance. The downstream replenishment demand before and after the Spring Festival holiday should be noted.

Spandex value chain has a long periodicity. Supply glut is still expected to dampen the market atmosphere before and after the Lunar New Year's holiday. High cash flow of spandex is still worrying for downstream players. Price of spandex is anticipated to shiver at bottom at the beginning of 2023.