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Insight | Time: May 20 2020 3:32PM
How will spandex market fare in the second half of Q2?
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In the first half of the second quarter, spandex 20-40D mainstream resources kept steady temporarily, and prices of 70D and 140D rose significantly in the first half of April. Since the second half of April, hot sales of spandex for ear bands for masks has started to cool down. By mid-May, prices of 70D and 140D for covered yarn, lace and ear bands had basically fallen back to around the 40D price. In the first half of Q2, prices of partial spandex specifications fluctuated, how about the spandex market in the second half of the second quarter?

Operating rate declines by 10% year on year
After the second half of March, foreign trader orders for textile and apparel were increasingly canceled or suspended. Demand is traditional fields was relatively weak, so spandex plants mostly cut production or shut down. In early April, spandex industry operating rate reached a low of 67%. Driven by hot sales of ear bands for masks, spandex industry inventory plunged, and partial overhauled units restarted. In addition, Chongqing Huafon’s newly added 30kt/year unit was put into production with rapidly rising run rate. In early May, industry operating rate ticked up around 80%, but it still decreased by around 10% compared with the same period of last year. If there is no obvious improvement in demand, some plants may cut outpour again.

Inventory remains high
In 2020, spandex industry inventory is expected to be at a relatively high level from the same period of recent years. In the first half of April, spandex industry evidently curtailed inventory, while the stock has slowly ascended since the second half of April. Supply of 20D and 30D was ample, and that of 40D, 70D and 140D gradually recovered to be sufficient. Spandex industry inventory increased from the low of 42 days to around 48 days. From May to June, the market is in traditional off season, while weaving plants may be still in consumption of inventory prepared in previous stage, so inventory of spandex plants is likely to consistently move up slowly.

Operating rate of weaving plants decreases year on year
Affected by the significant losses of foreign trade orders, from late March to before the Labor Day, operating rate of weavers constantly slipped. However, after the Labor Day, with the bullish support of domestic sales, operating rate slowly climbed up. Nevertheless, under the circumstance of unlock of partial countries, inquiries of foreign trade orders increased but the amount of actual orders remained small. Foreign orders were dominated by small orders. Operating rate of weaving plants that were mainly supported by demand of domestic trade still dropped by 6% year on year. On May 19, operating rate of circular knitting in Jiangsu, Zhejiang, Guangdong and lace in Fujian was at 24-40%, while run rate of air covered yarn in Shengze, Xiaoshan and Shaoxing, conventional covered yarn in Zhuji and Yiwu, cotton core spun covered yarn in Zhangjiagang was at around 50-60%.

Note: Weighted average of operating rate of circular knitting and covered yarn in Jiangsu and Zhejiang, circular knitting, warp knitting in Guangdong and lace in Fujian

It was understood that China’s economy gradually recovered, with rebounding domestic trade orders of textile and apparel. In terms of production, output of single-faced circular knitting and covered yarn denier products was relatively small, while production of several thin fabrics kept stable. At present, production was mainly on orders and for sample of autumn and winter orders, while several weaving large plants largely built inventory when raw materials were priced low. Epidemic situation in overseas textile and apparel emerging markets such as India was pessimistic, and some textile and apparel orders may be transferred to China with the unlock and of some European countries as well as economic recovery.

Main raw material price drops
MMDI price significantly fell, and PTMEG also slightly moved down in the second quarter. However, spandex mainstream resources were priced stably in the second quarter, and prices of differentiated products also ticked up, leading to rebounding cash flow of spandex plants. Profits of 60-end and above units with high efficiency and low cost picked up.

Spandex market is weak to stable in the second half of Q2
After hot sales of ear bands for masks and soaring sales volume in April, more attention should be paid on supply and demand fundamental and cost in spandex market. It is estimated that spandex industry supply may be modestly controlled under the circumstance of partial plants cutting production. For demand side, foreign trade orders should be the focus. With the unlock of more and more overseas countries, the worst period of spandex demand has passed, and the consumption for rigid demand may rise. As spandex midstream and downstream prepared a large amount of inventory in mid-April, market inventory may still need to be digested in the second half of Q2. Inventory of spandex plants is likely to be slowly accumulated, and new products actively explore market, so industry competition is expected to be severe. Spandex market is anticipated to be weak to stable, while promotion for new products, resources that have been stocked for a long term and large orders may ascend.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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