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Insight | Time: Mar 19 2020 3:39PM
Analysis on impacts of low oil price on spandex industrial chain
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Crude oil prices plummeted recently and entered the era of low oil prices. Spandex industrial chain is dominated by spot, and the long industrial chain causes that the impact of low oil prices on cost is slow.

PTMEG faced losses pressure, and the easing effects of crude oil slump on cost was very limited 
As prices of BDO and PTMEG were at below the cost line, so the reaction to declining cost may be relatively slow. In addition, the processing routes of BDO and PTMEG were various, and crude oil accounted for a small part of domestic units. Thus, the crude oil plunge is unlikely to put downward pressure on prices in short term.

MDI price may need to search the bottom again.
MDI price reacted rapidly, and its upstream benzene price fell quickly with the crude oil slump, with the fast decrease of MMDI. The demand recovery of MMDI market was relatively slow in the traditional peak season of March. In addition, the demand of end-users was still in recovery. Therefore, MMDI price may need to search the bottom again. At present, most domestic MDI units shut down or reduced production, leading to significantly slipping operating rate. In the second quarter, more units may be overhauled as scheduled, so there is expected to have certain improvements in supply and demand. Facing the plunging cost and insufficient demand, MMDI price may be under the great downward pressure in short term. The bottom of benzene price should be paid attention recently.

Spandex price got close to the record lows
Spandex industry was in an evident oversupply pattern. Besides, it was squeezed by upstream and downstream, so industry profits was largely sluggish. Most plants were at an intensified loss, and only a small number of large plants were meagerly beneficial amid slipping. Currently, spandex 40D price was at 28,700yuan/mt, which slightly increased by 700yuan/mt compared from the historical low in the third quarter of 2016. Affected by epidemic and the slump of global commodities, spandex demand was restricted to a certain degrees, with industry inventory soaring to around two months. Spandex plants actively dealt with it and adjusted down operating rate. In January-February, run rate was at a low level, and it slowly moved up in March, laying the foundation for operating rate average being a low level from the same period of last year. Spandex plants are estimated to actively sell cargoes and curtail inventory under the high inventory pressure. Several resources and new products that have been stocked for a long term are anticipated to be still in promotion, while spandex market may still be under the downward pressure.

Concerns about order quantity of downstream weaving plants
Impacted by epidemic, operating rate of downstream weaving plants was generally low in February and early March. In mid-March, production recovery of weaving plants modestly accelerated. In the context of support for orders, it is believed that the lost production may be made up rapidly amid high run rate. However, how to remedy weak demand? At present, textile and clothing sales at home and abroad shrank. For domestic sales, winter and spring clothing sales were at a low level, while the production for summer clothing was dominated by output for thin fabric, so the consumption of textile and garment raw materials was limited. It is anticipated that demand may drop in the traditional peak season of March-May. With the crude oil plunge, prices of textile and garment raw materials were largely adjusted down, while new order acceptance of weaving enterprises also descended. For export sales, due to the impacts of uncertainties brought by the trade war between China and the US since 2018, the transfer of partial export orders to other overseas markets accelerated. Though the trade war eased in the second half of 2019, export modestly recovered, with the epidemic outbreak of Japan, South Korea, the Middle East and Italy after the Spring Festival, China’s textile and garment export was firstly significantly affected because its foreign trade was the most active and the trade volume was the largest. Thus, textile and clothing market missed the domestic trade market in spring and was under the continuously increasing downward pressure.
[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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