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Insight | Time: Feb 26 2020 3:34PM
How will spandex market fare amid soaring inventory?
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In the first half of February, affected by the epidemic, the demand gap of spandex industry was significant, leading to sharply ascended industry inventory. For the supply side, though spandex plants began to reduce operating rate, the supply was still in surplus to demand due to extremely shrunk demand. Weaving plants and logistics significantly lacked labors. During the period from the end of February to early March, work resumption of weaving plants in Jiangsu and Zhejiang gradually ascended, and demand gradually picked up, so spandex trading may successively move up. Under the pressure from high inventory, spandex plants’ plan of raising prices may be put on hold, while they are estimated to sell cargoes actively and curtail inventory.

High inventory and plunging operating rate
Impacted by the Spring Festival holiday and the accidental event, spandex inventory soared from 38 days before the festival to above 58 days, reaching the highest level since 2017.

In February, affected by various factors such as high inventory and insufficient supply of partial supplementary materials (especially paper tube), spandex industry dropped by around 10% from 83% to around 74% in mid-February. Spandex plants with run rate at above 80% curtailed output to varying degrees, and three enterprises shut down for maintenance in the first half of this month.

Slowly recovered midstream and downstream 
After this Spring Festival, the work resumption of spandex downstream weaving plants was apparently postponed by more than half of a month from the eighth day to the fifteenth day of the first lunar month in previous years to the end of February and around early March. At present, run rate of circular knitting, warp knitting, covered yarn and lace was at 10-20% or above, and units generally ran at a low level. The work resumption of downstream weaving plants may significantly increase by mid-March.

With the gradual recovery (provincial and inter-provincial) of logistics, the delivery of spandex plants may rise from late February. Several plants produced for orders that were placed before the festival, and downstream weaving plants also began to purchase raw materials on demand.

However, clothing sales of this winter and spring is dragged down by the accidental event, and some foreign trade orders may be transferred to other overseas countries. The so-called peak season for textile industry from March to May is also estimated to be postponed. The accomplishment of inventory reduction of spandex industry is likely to rely on spandex plants continuously controlling operating rate. Plants are active in sales, and resources that have been stocked for a long term and new products are anticipated to be promoted again with lower prices.

Slightly ascending spandex cost
In February, prices of raw materials for spandex production stably edged up month on month, while plants obviously intended to raise prices due to the supply tightness of several supplementary materials such as paper tube. PTMEG market supply was smooth, and the delivery was normal. Under the losses pressure, plants insisted on ticking up prices. Prices of some domestic orders were talked higher by around 300-500yuan/mt, and discussing prices may be gradually rise this month. MMDI nomination price maintained steady at 18,500yuan/mt amid low demand, and prices were adjusted at a low level in short term.

Market outlook
The work resumption of downstream weaving plants is expected to accelerate from the end of February to early March, while more and more labors may move toward reboot. Rigid demand and the demand for preparing inventory may gradually recover. Operating rate of downstream weaving plants is anticipated to significantly increase in mid-March. Though spandex industry is supported by the cost side, spandex plants are still likely to mainly sell cargoes and reduce inventory under the great pressure from high inventory. A small quantity of resources that have been stocked for a long term or new products may still be promoted.
[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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