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Insight | Time: Nov 17 2020 4:20PM
Spandex price increases by 10,000yuan/mt, how will it fare later?
 
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Spandex market is during traditional peak season now. In addition, stimulated by the expectation of cold winter, sound domestic orders for the online shopping spree on Nov 11, the order transfer from Southeast Asian nations such as India and some foreign orders for the Christmas Day, fabric mills saw good orders. Hot sales of elastic fibers drove run rate of spandex downstream mills to historic high. Price of spandex surged, up by around 10,000yuan/mt or above 32% within 3 months. How will spandex market fare in later period?

Price of spandex (Unit: yuan/mt)
  20D 30D 40D
2020-8-20 33,300 32,500 27,800
2020-11-16 44,000 43,000 36,700
Change 10,700 10,500 8,900
Change (%) 32.10% 32.30% 32.00%

In view of demand, demand for spandex has marginally weakened in mid-Nov after earlier orders gradually completed. Production of thermal fabrics such as thick fabrics and fabrics for dralon and sweater gradually came to an end. Some plants saw sampling orders for the light fabrics for clothes in spring and summer. Exporters, fabric plants and textile and apparel companies had price game. However, later market still deserves anticipation as the pandemic is relatively better controlled in China. Sequent orders should be concerned.

Operating rate of downstream mills kept high, with that of warp knitting plants, air covered yarn plants and cotton core-spun yarn units in Zhejiang and Jiangsu up to around 70-90% and that of circular knitting plants, lace knitting unis, conventional covered yarn mills and braid mills at 50-70%. Operating rate declined in some plants after earlier orders completed. Some large circular knitting plants were still busy in delivering orders taken before in Guangdong, Zhejiang and Jiangsu, but local orders started coming to an end. Warp knitting plants witnessed good business. Low-end warp knitting plants such as super-soft spandex fabric and velvet plants almost ran at full capacity at the beginning of Q4, but some plants have started slashing run rate with rising spandex price and falling orders. Some high-end warp knitting plants in Guangdong mainly produced based on feedstock procurement as spandex supply was tight. Orders can guarantee production until the beginning of 2021 in some plants. Production of covered yarn and lace knitting slightly diminished, and some plants started cutting run rate.


As for supply, proportion of top 5 spandex companies accounted for around 70% of the total in 2020, with concentration ratio much higher than that of nylon and polyester market. New capacity growth rate is estimated only at 2.6% in 2020, the lowest level since 2005. In addition, spandex enterprises curtailed production greatly in the first half of year amid the COVID-19, but foreign orders surged in the second half of year and consumption of sportswear and casual wear rose. Stocks of spandex decreased rapidly when sales of elastic fabrics were hot, having declined to around 9 days now.


Cash flow of spandex 40D and BDO market apparently accumulated in end-Q3. Profit of spandex 40D hiked to the highest level in recent years and overall profit on spandex market apparently improved when margins of super-fine denier and coarse spandex were tolerable. However, cash flow of PTMEG market deteriorated compared with Q3 dampened by upstream and downstream market and tight supply. Under such circumstance, price of PTMEG may rise faster in later period.


Downstream fabric mills have seen falling orders and diminishing operating rate since mid-Nov, but the run rate remains high now, supportive to rigid demand for spandex. Supported by rising feedstock price and low stocks, price of spandex is likely to continue rising and keep high. Supply tightness is expected to be eased as demand from some sectors has weakened. The order placement for orders of fabrics in spring and summer should be noted 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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