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Insight | Time: Sep 23 2020 2:52PM
Why does spandex price climb up recently?
 
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The way of life has changed in the post-pandemic era. People do more exercise. As a result, sales of elastic fabrics for sportswear and yoga clothing are better than those of conventional fabrics. In addition, hush orders increase after beddings sold out in some shopping malls in Europe and US. Supported by tolerable demand, price of spandex bottoms up in the third quarter and spandex market outperforms compared with nylon and polyester market.

Price of spandex, nylon and polyester (Unit: yuan/mt)
Date Spandex 40D Nylon 6 POY 70D Polyester POY150/48
2020-9-21 29000 12700 4900
2020-7-1 28000 13700 5345
Change 3.60% -7.30% -8.30%

Supply: operating rate of spandex market is slow with weak anticipation
Operating rate of spandex plants averaged at 79.5% in Jan-Aug, 2020, down by 5.1% y-o-y. Demand for spandex was seriously hit by the pandemic in Q1 and was impaired again in Q2 with slipping foreign orders for apparels. In expectation of feeble demand, spandex enterprises control operation rate strictly. Operating rate of spandex market is slanting low this year. Some large and old companies cut production in a large scale.


Many spandex enterprises scaled down production in the third quarter affected by heat weather in previous years, but the monthly run rate on spandex market gradually ascends in Jul-Sep, up by around 1% in end-Aug compared with end-Jul. Operating rate was mainly around 80-90% in the first half of Sep. Rui’an Huafon’s 57kt/year unit has gradually restarted production after shut down for turnaround in mid-Sep.

Stocks: spandex inventory reduces apparently in Q3
Operating rate of spandex downstream mills is high in Q3. Price of major feedstock including MMDI and PTMEG climbs up in expectation of peak season. Supported by these factors, demand for spandex from downstream market increases and stocks of spandex dip obviously. Inventory of spandex has dropped by around 25 days since mid-Jul, with the reduction similar to that in Q3 2017. More spandex descriptions become tight now, and the delivery of goods has to queue.


Demand: hit expectation
Foreign orders emerge intensively in Q3 and local orders are also moderate, mainly driven by orders for online shopping spree in Nov and Dec. Downstream mills witness hot sales and run at high capacity by mid-Sep. Operating rate of covered yarn plants, warp knitting units, braid mills and circular knitting plants in Zhejiang, Jiangsu and Chaoshan, Guangdong mostly rises to 60-90%. Some lace knitting plants in Fujian and circular knitting plants in Foshan run at 40-50% of capacity. Few mills will shut down for the coming Mid-autumn Festival and National Day holiday (Oct 1-8).


The pandemic continues worldwide. Although orders for circular knitting and warp knitting fabrics are sound in Q3 and orders in Q4 enjoy support in some leading companies, the orders at the end of 2020 and demand in Jan-Feb are still worrying. The continuity of orders and run rate on downstream fabric market should be noted. Speculative buying on polyester and nylon market emerged several times this year under low price. Downstream mills that witness high stocks face big capital pressure. Some mills may put their holiday schedule for the Lunar Chinese New Year ahead of schedule in end-Nov or Dec and turn to focus on payment collection. In addition, the exchange rate of RMB against USD appreciates greatly in recent period. That means exchange loss for some foreign orders.

All in all, supported by cost, low stocks and tight supply, price of spandex has foundation to rise in short run. Competition among different brands diminishes but remains. Price of mainstream resources is likely to increase slowly. COVID-19 and uncertain international pattern is the major two reasons affecting market in 2020. Foreign orders for textiles and apparels still have uncertainty. If orders on downstream market do not chase up strongly at the end of Q4, rising spandex price may be prohibited. Stocks are likely to accumulate again, tight supply may gradually become normal and price of spandex is more likely to be in range bound.
[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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