Spandex price slumps and may extend lower

Price of spandex kept falling after the May Day holiday with ongoing soft demand and collapsing PTMEG price, with mainstream price of 40D down to below 50,000yuan/mt and even lower at 45,000yuan/mt. By May 13, price of spandex 40D was at 48,000yuan/mt, hitting the lowest level since late-Feb, 2021.

Price: moved down and the price gap shrank

Supply of spandex remained high but has decreased. The operating rate of spandex plants fell to 80-90% and may reduce further in later period. New units are still active in starting production, while some slightly delay launching with selling pressure. However, most downstream fabric mills purchased spandex on a need-to-basis. Traders purchased under large orders and bargained for lower price. Suppliers of spandex were active sellers under burden. Stocks of spandex accumulated to 41 days. With fierce competition, price of spandex headed south.

According to the data from CCFGroup, supply of spandex was in glut in 2018-2019, with yearly disparity of 20D and 40D at 5,640yuan/mt and 5,820yuan/mt respectively. The price gap between 20D and 40D has dropped by 9,000yuan/mt to current 16,000yuan/mt from the highest 25,000yuan/mt in Aug 2021, while sustained high. The price gulf between 10D-30D and 40D is estimated to shrink further later.

Fabric manufacturing: the run rate slightly increased after the May Day holiday; cautious expectation keeps

The operating rate of downstream fabric mills slightly rose by 2.4 percentage points after the May Day holiday, still above 10 percentage points lower than the corresponding period of last year. The operating rate of circular knitting plants in Foshan of Guangdong, Zhejiang and Jiangsu, lace knitting plants in Fujian and braid mills in Guangdong was at 20-40%, that of circular knitting mills in Chaozhou and Shantou from Guangdong and Quanzhou of Fujian was at 40-50%, apparently lower on annual basis, and was at 60-70% for covered yarn mills and warp knitting plants, with some big plants running at full capacity in Guangdong.

Prices of nylon and polyester fibers apparently climbed up after the May Day holiday. Fabric mills stabilized price to promote sales with high stocks. Fabric mills witnessed narrowing cash flow based on spot raw material prices. Stocks of fabric slightly slipped while kept high. Export orders lacked large lots in the first half of Q2 and domestic consumption was soft amid the pandemic. Fabric mills were unwilling to hoard up stocks with reducing spandex prices. If orders fail to improve later, the operating rate of downstream plants may dip further. Textiles and apparels companies in Zhejiang and Jiangsu were less anxious to purchase fabric after the Asian Games which was supposed to be held in Sep 2022 in Hangzhou, Zhejiang was postponed. For example, the operating rate of warp knitting plants in Haining inched down again after rose at first after the May Day holiday. In addition, fabric mills saw deteriorating operational environment this year, with tight capital and high financing cost. The stagnation of some spring apparels occupied some working capital. The logistics issues have been mitigated but remained not very smooth. As for the payment days of spandex, suppliers have extended it to 45-60 days, even longer for some core customers.

Market expectation

Spandex capacity exceeded 1 million tons/year for the first time in Chinese mainland in 2022 and the growth rate is estimated to be around 26% in 2022. However, exports of textiles and apparels are estimated to face big pressure affected by the Russia-Ukraine conflict and high inflation. Domestic demand is also constrained by slower economic development and the worse spread of pandemic. The growth rate of demand is expected to be substantially lower than that of supply on spandex market. Price of spandex is expected to extend lower with large sales pressure and fierce price competition in short run. The decrement of super-fine denier spandex and 30D may keep big. Price of 40D and medium-to-coarse denier spandex is likely to be near the break-even line.