Spandex market review in H1 2023 and outlook for H2

Price of spandex increased at first but fell back later in the first half of 2023, which shivered near the bottom in Jun. The operating rate and price of spandex both decreased on the year in the first half of 2023. Stocks of spandex slightly reduced in H1 2023 stimulated by popular sunscreen products and higher addition content of spandex in men's wear etc. The cash flow of spandex industry also slightly improved.

Price: rose--declined--shivered near bottom

Price of spandex moved up at first but decreased later in H1 2023. Spandex price consolidated near the bottom after the fourth quarter of 2022. By the middle of 2023, price of spandex declined by 1,000-2,000yuan/mt over end-2022, with decrement at around 2.9-6.3%.

Price of spandex was firm from the beginning of 2023 to early-March. There was big bullish news on macro market. In addition, PTMEG price rose substantially due to tight supply. There was also stimulus from rigid demand and replenishment demand. Price of spandex increased more than other raw materials of textiles and apparels. The startup of new units was intensive driven by the increase of price and demand and the run rate of existing plants climbed up. After BDO price surged, most sectors were hard to accept it, excluding spandex field. As a result, BDO price plunged in March. Buyers focused on digesting spandex prepared before. Spandex suppliers saw faster inventory accumulation. Price of spandex started falling in the second half of March.

Price of conventional spandex varieties declined at first and turned to consolidate in the second quarter. The price competition was fierce in the first half of the second quarter. The contradiction between supply and demand escalated when most buyers focused on digesting spandex prepared before and new spandex capacity soared in the first quarter. Buyers were cautious in buying in April and first half of May, and some turned to purchase spandex to guarantee around 7-10 days of production, mainly to cover the pressing demand. The price competition among spandex suppliers was fierce. Some discounted price was low with pressure from capital recouping. Price of BDO stabilized and slightly rallied after the second half of May. More spandex plants cut production under ongoing losses. Players expect the production of thick fabrics to improve in the second half of 2023. Therefore, some buyers began to replenish according to own demand. After inventory of spandex was transferred to downstream market and spandex plants wanted to reduce losses, some spandex plants revised up offers after late-June. Price of spandex stopped falling and turned to shiver. Low prices of spandex reduced and price of some tight varieties increased by 500-1000yuan/mt.

The average price of spandex 20D, 30D and 40D decreased by 44.9%, 39.3% and 35.4% respectively in the first half of 2023.

Capacity: growth rate remained large, up by more than 10%

By the end of June in 2023, spandex capacity was at 1,211.5kt/year in Chinese mainland, up by 115kt/year or 10.5% over end-2022 and up 14.5% year on year. The new spandex capacity approached 145kt/year and 15kt/year respectively in Q1 and Q2 of 2023. 45kt/year of capacity was eliminated in the first half of year. Therefore, the total capacity increase of spandex was at 115kt/year in H1 2023.

Operation rate and inventory: both decreased on the year

Operating rate of spandex plants was at 79.8% in H1 2023, down by 7.4 percentage points on annual basis. Inventory of spandex fell by 3.9 days year on year to 34.3 days in H1 2023 driven by demand from sunscreen, sports, casual fabric and men's wear.

Demand for spandex apparently grew in the first half of 2023, up by near 25% on the year, when the demand was low in the same period of last year.

Cash flow: improved

The cash flow of spandex curved a consistent trend with the price in the first half of 2023, increasing at first but then falling. The average cash flow of spandex 40D was above 2,300yuan/mt in Q1 2023 and the losses were 123yuan/mt in the second quarter after spandex price rapidly decreased and turned to shiver near the bottom while major feedstock price slightly rose. The average cash flow of spandex 40D was at 1,005yuan/mt in H1 2023, up on annual basis. However, after factoring into the costs such as depreciation and finance, many companies were in dilemma. Only some leading enterprises saw minor profit.

Forecast for H2 2023

The launch time of new capacity on spandex and PTMEG market is different in 2023. New capacity of spandex was at 160kt/year in H1 2023 and may be at 72kt/year in the second half of year. As for PTMEG market, few new units started operation in the first half of 2023 and some plants even suspended production. Price of PTMEG enjoyed strong support. However, in the second half of 2023, especially in Q4, after capacity of PTMEG and BDO greatly expanded, the price competition is estimated to be intensified by that time. In terms of spandex sector, it is constrained by oversupply after capacity continued expanding in 2021-2023, and the support from the cost side may be no as strong as the first half of 2023. Price of spandex may need find a new balance between cost and supply/demand in the second half of 2023 and the price is likely to rebound sometimes during the peak season.