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Insight | Time: Jan 21 2021 10:24AM
Spandex: price soars by 50%, how about cash flow?
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Price of spandex increased apparently since Aug 2020 and the increment of conventional varieties such as 20-40D was around 50%. Price of spandex 20D rose by 16,700yuan/mt or 50.2% to 50,000yuan/mt and that of spandex 40D ascended by 12,700yuan/mt or 45.7% to 40,500yuan/mt. Spandex became “noble fiber” again, and how about the cash flow?

Price change of spandex
Unit: yuan/mt 20D 30D 40D
2020-8-20 33,300 32,500 27,800
2021-1-19 50,000 48,500 40,500
Change 16,700 16,000 12,700
Change (%) 50.20% 49.20% 45.70%

Let’s review the cash flow of 40D in 2016-2019 at first. Based on the statistics of CCFGroup, cash flow of 40D improved driven by supply-side reform in 2016-2017. The growth rate of supply was hard to match with that of demand from 2018 to the first half of 2020, and price kept falling amid oversupply. Average cash flow of spandex 40D was at 548yuan/mt in 2018 and turned to during negative territory in 2019, at -1,102yuan/mt. Except for some leading companies, foreign enterprises and medium-to-high brands, most spandex plants suffered obvious losses in 2019.

Spandex companies turned to be profitable instead of under losses in 2020. Capacity expansion on spandex market slowed down in 2020, and only 30kt/year of capacity from Huafon Chongqing started operation at the end of Q2, with industrial capacity growth rate falling to historic low of 2.6%. However, demand for spandex grew by around 10% stimulated by demand for pandemic prevention materials such as mask and protective clothes and elastic fibers.

Cash flow of spandex gradually improved in 2020. Cash flow of spandex 40D rose to 6,000-7,000yuan/mt at the end of 2020 from slight losses in early-2020. In the first half of 2020, cash flow of 40D was not optimistic and only 70D-140D for ear band of mask was lucrative with hiking price in Apr. Comprehensively, leading companies enjoyed cost advantage in terms of raw material, energy consumption, deprecation and labors and witnessed good profit. Cash flow turned to positive territory from negative territory after Q3 with the return of some foreign orders and recovering local orders. In Q4, price of spandex rose more amid hot demand and the increment was apparently bigger than that of feedstock. Thus, cash flow of spandex was once as high as 6,000-7,000yuan/mt. The annual cash flow of spandex 40D surged to 1,182yuan/mt in 2020.

Cash flow of leading companies was as high as 10,000yuan/mt now due to high efficiency and low cost, and that of 20D and 30D from some new plants with 120-end multi-end device ascended to around 15,000yuan/mt. Based on the earnings preannouncement of Huafon Chemical whose major business are spandex, adipic acid and shoe sole, the net profit attributable to shareholders of the listed company is expected to be 2-2.5 billion Yuan in 2020, with y-o-y change at 8.6-35.8%.

Most spandex companies do not have stocks at hand now and the delivery needs to queue. Thus, price of spandex keeps increasing, which may continue rising amid low stocks and ascending feedstock cost, and cash flow of spandex has hit 5-year new high at the beginning of 2021. Replenishment is supposed to be moderate in short run, and stocks of spandex may accumulate in end-Jan or early-Feb after the logistic suspended on Lunar Chinese New Year but are still expected to be low. With enlarging increment of spandex price, downstream participants see shrinking profit and present weaker acceptance. In medium-to-long run, eyes are suggested to the consumption power of end-users after the Lunar Chinese New Year and whether downstream demand will improve.
[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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