Why does price spread between spandex 20D and 40D expand?

Spandex market has remained "prosperous" since the second half of 2020. Price of spandex 20D increased more apparently than that of 40D and their price disparity expanded rapidly, which was mainly due to the following major aspects:

1. Price comparison of 20D and 40D during expansion period

Price spread between 20D and 40D tended to expand apparently when spandex price was under uptrend based on historic performance. Price gulf between 20D and 30D was as high as above 25,000yuan/mt in 2010-2011 and at around 15,000yuan/mt in 2013-2014 when overall market was in expansion cycle. The spread expanded to current 17,000yuan/mt from 5,500yuan/mt in Jul 2020, lower than the gap in 2010-2011 amid advanced production technology and improving spinning speed.

2. Supply side
New spandex capacity was mainly contributed by Huafon, Xinxiang Chemical Fiber and Lianyungang Duzhong New Aoshen, with new capacity at 60kt/year, 45kt/year and 12kt/year respectively. Huafon and Xinxiang Chemical Fiber concentrated on production of 35D and 40D, while Lianyungang Duzhong New Aoshen focused on manufacturing 20D and 30D, with small 40D.

Proportion of 20D in total spandex production slightly decreased in 2016-2020 while that of 30D gradually climbed. 40D enjoyed absolute advantage in terms of market share. However, the proportion of 40D and above saw low growth. As for the production of different varieties, 20D, 30D, 40D and above witnessed stably increasing output. Production growth of 20D and below was mainly from 64-end, 80-end, 96-end and 120-end in recent 2 years. Some old units in East China scaled down production of 20D and 30D as spandex stocks surged in the first half of 2020. Thus, supply of 20D and 30D was short after demand boosted since Q4 2020, especially 20D.

3. Peak season and slack season of downstream market
Downstream plants will focus on producing light fabrics from October to March-April. Rigid demand for spandex 20D (and spandex below 20D) and 30D will be good, which tightens 20D and 30D supply further. Delivery of 20D and 30D took longer time than that of 40D and above. Under such circumstance, price of 20D was bigger than that of 40D.

4. New demand growth point
People pay more attention to sports in post-pandemic era, stimulating sales of yoga clothes and sportswear etc. The content of spandex is raised to 15-25% or above from 10-15%.

Demand from downstream circular knitting market outperformed. High-density circular knitting machine apparently increased in Chaoshan and Quanzhou in Guangdong, mainly consuming spandex 20D and 30D. In addition fine covered yarn also performed well since Q4 2020, which adopted 20D as feedstock. Strong demand for fine covered yarn from woven fabric makers lifted demand for spandex 20D.

5. Better profit of 20D than 40D
Supply of spandex 20D-30D has sustained tight in recent 6 months. Factories substantially raised price to be more profitable. Therefore, cash flow of spandex 20D was apparently higher than that of 40D. Cash flow of 120-end 20D could be as high as 30,000yuan/mt in new units, while the net profit would be slightly lower after factoring into financial cost and deprecation. Cash flow of 64-end spandex 20D was above 20,000yuan/mt and that of 40D was mostly near 10,000yuan/mt.