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Insight | Time: Mar 12 2021 10:28AM
Weak signs emerge, how will spandex fare?
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10-year U. S. Treasury yields breached 1.5%, leading to the change of risk preference on the market. Risk-aversion mindset intensified on stock and commodity market worldwide. Price of many textile feedstock including spandex, nylon, polyester, cotton and viscose hiked after the Lunar Chinese New Year, and the increment of spandex was around 70% after Jan 1, 2021. Some downstream fabric mills on spandex market suffered apparent losses for orders taken earlier. Some middlemen also change operation strategy, turning to be active in selling and shortening stocks at hand. Negative feedback from downstream market escalated. Middlemen played weaker role as reservoir. Spandex companies have witnessed slower sales. How will spandex market fare later?

Price of spandex
  20D 30D 40D
2020-8-20 33,300 32,500 27,800
2021-3-11 77,000 74,000 64,000
Change (yuan/mt) 43,700 41,500 36,200
Change % 131.20% 127.70% 130.20%

Downstream market: O/R gradually ascended and later uncertain increases

Operating rate of downstream market kept increasing in the first half of Mar. O/R of circular knitting plants and lace knitting plants in Zhejiang, Jiangsu and Guangdong was at 40-50%, that of cotton core-spun yarn, air covered yarn plants, conventional covered yarn plants and warp knitting mills rose to 60-80%. Some fabric mills turned to digest spandex purchased before with hiking spandex price.

Fabric mills saw obviously mounting pressure due to surging spandex price. With hiking spandex price and tight spot supply, some downstream orders which were taken before have been not profitable. New orders also encountered resistance. Downstream market failed to chase up, and some fabric mills have turned to produce fabrics with low proportion of spandex. Some even started avoiding taking orders requiring spandex as feedstock. Spandex price may have touched periodical high and meet greater upward resistance. Mindset among downstream and middle stream market has altered. Some fabric mills that saw little-to-no orders have started selling spandex at hand, and profit-taking sales from middlemen also increased. High price has obviously fell.

Stocks: spandex producers saw mounting stocks

Inventory of spandex slightly accumulated to around 10 days, still remaining low. Supply of spandex 20D-40D for textiles and apparels sustained tight, especially 30D, 20D and below. Downstream buyers showed weaker acceptance toward medium-to-coarse denier spandex. Spandex stocks in some dealers and fabric mills were mainly around 10-30 days. Inventory of spandex was transferred to downstream and middle stream market. Once buyers start digesting stocks at hand and are inactive in restocking, stocks of spandex may increase slowly.

Cash flow of spandex value chain was high
Cash flow of BDO, PTMEG and spandex has gradually improved since Q4 2020 and the average cash flow of these 3 products rose to above 10,000yuan/mt now. However, as downstream market followed up slowly and sales from dealers increased in early-Mar, cash flow of BDO and spandex slightly reduced. Price of PTMEG advanced apparently more. Mainstream price of PTMEG 1800 was at 43,000-45,000yuan/mt in Mar, with increment at around 20,000yuan/mt. Supported by rapidly rising price, cash flow of PTMEG also climbed quickly after hit low in end-Feb.

Market outlook
Spandex market is mixed with bears and bulls now. Price of PTMEG surges amid losses. With tight supply, spandex companies are eager to track uptrend on feedstock market. However, downstream fabric market meets resistance in chasing up. Negative feedback is stronger from downstream market. Players present weaker intention to buy recently, mainly controlling or reducing stocks. Price of spandex is expected to be in range bound in short run. Some producers may revise up price amid tight supply, but the purchasing volume of downstream buyers needs further observation. Downstream plants will start making fabrics for autumn in Apr-Jun by convention. If downstream plants witness modest orders for autumn fabrics, prices of spandex are likely to head south after Apr.
[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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