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Insight | Time: Oct 16 2020 10:59AM
Spandex price increases more amid tight supply
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Affected by moderate demand since the middle of Q3, supply of spandex exceeded demand before but turned to behind demand at the end of Q3. Price of spandex climbed up mainly supported by surging downstream demand. In addition, ascending cost was another upward momentum.

Operating rate of spandex has been around 90% now, but supply of conventional descriptions remained tight after earlier stocks decreased. Price increment kept increasing in the second half of Sep. Supply of spandex 20D-40D was tight. Stimulated by rising cost and low stocks, mainstream spandex companies such as Huafon, Xinxiang, Tayho, Huahai and Aoshen increased price by around 2,000yuan/mt from Oct 15 amid tight supply and restricted large orders. By now, mainstream price of spandex 40D was 30,000-32,000yuan/mt, higher at 32,500-34,000yuan/mt for high-end ones, with increment at around 1,500-2,000yuan/mt after the National Day holiday. Price of spandex 40D has rose by as high as 3,200yuan/mt since mid-Q3, close to the level at the beginning of 2019.

Affected by the pandemic, players held weak anticipation toward spandex price in 2020, but the actual spandex price climbed strongly.

In view of supply, new spandex capacity was scarce in 2020, only the 30kt/year from Huafon Chongqing. The total spandex capacity is estimated to 871.5kt/year by the end of 2020, up by around 2.6%. Taking the new capacity and eliminated capacity into consideration, the increment is supposed to be only 22kt. New unit from Huafon in 2019 and the new 30kt/year unit in 2020 ran at high capacity, compensating partial losses from some leading old plants.

However, operating rate of spandex market hit historic new low this year since 2013. Spandex companies controlled run rate low in the first three quarters of 2020. Supply of spandex became in shortage in Q4, and high run rate on spandex market is likely to maintain, while the annual operating rate is estimated at around 83%.

As for demand, hot spots changed in 2020 on pandemic, and these focuses were helpful for the supply/demand improvement on spandex market.

Firstly, consumption of spandex in mask and protective clothing surged, which may contribute to above 20kt of demand growth. Technology on circular knitting market continues upgrading. Production cost of high density knitting sportswear fabric declines and the production efficiency also heightens. Around 5,000 set of new machine appear. Based on the factors such as products and gram, monthly consumption of spandex on individual new machine is 0.4-0.5 tons, which is also new demand for spandex. Demand growth from these two sectors is estimated to account for more than 5% of the spandex demand in 2020.

Secondly, people pay more attention to leisure and sports amid pandemic. Consumption of elastic fabric increases due to its comfortability. Sportswear fabrics are popular in fitness filed amid its functionality. Elastic fabrics are more popular than others. Circular knitting and warp knitting machine produces more sportswear fabric and fabric for yoga clothing, and the content of spandex apparently ascends, with some up to around 18-20%. As a result, the demand for spandex grows.

Thirdly, impacted by the El Nino, people expect a cold winter this year. Demand for home textile and thermal products improved substantially from abroad earlier and remains sound. Sales of low-end warp knitting are smooth supported by good demand, and low-end warp knitting plants run at rare 90% of capacity, even higher at 100%, with strong rigid demand for spandex.

Fourthly, the order transfer from some markets such as India also boosts textile and apparel market in China. Many media reported that some orders are transferred from India to China and order schedule in many apparel manufacturers can even continue into May 2021. Li Xingqian, Director of the Foreign Trade Department of the Ministry of Commerce, said, China is the biggest manufacturer and exporter of textiles in the world, enjoying apparent advantage in terms of labor-intensive products export. It cannot be more common for multinational companies adjust order production worldwide and for international purchasers choose suppliers based on production capability. China takes a lead in production restart and resumption, effectively guarantee international supply and supports the smooth operation of international industrial chain and supply chain.

According to the statistics of CCFGroup, operating rate of spandex downstream mills continues moving up after the National Day holiday, with that of covered yarn plants, warp knitting units, braid mills and circular knitting plants in Zhejiang, Jiangsu and Guangdong at around 60-90% and that of lace knitting plants in Fujian and circular knitting plants in Foshan, Guangdong at around 50-60%. Operating rate of fabric mills is higher than anticipation after the National Day holiday. Sales of fabrics are smooth and even hot in some plants. Sound demand pushes up run rate of downstream mills to historic high. Order schedule can continue into H2 Nov in many fabric mills.

With improving supply/demand pattern, tight supply and rising feedstock price, price of spandex is expected to continue rising in Oct-Nov. Downstream order change in Dec and at the beginning of 2021 should be concerned later.
[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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