Review and Prospect of the Spandex Market



Review of 2005

1. Raw material market

     (1) Price reduction of raw materials

After the sustained drastic price rise in 2004, the price of Spandex raw materials pure MDI (diphenylmethane diisocyanate) and PTMEG (polytetramethylene ether glycol) had a short-term increase at the beginning of 2005. It started to go down after April and continued the reduction trend afterwards. There was a difference of US$580 per ton between the highest average import price of pure MDI and the lowest average import price at the end of 2005. The price reduction of raw materials lifted some of the cost pressure on spandex producers.    Increasing supply and slack demand are the main reasons for the price downturn of spandex raw materials. The sustained price rise of MDI in 2004 led to a drastic cost increase in downstream sectors and a remarkable demand growth slowdown in 2005. Both the capacity and the output of MDI in the world had a drastic growth during that period and the price also had a rational reduction. The demand growth of PTMEG came down. The reduction of the operating rate in spandex units in Korea and Japan also promoted the shift of PTMEG supply from overseas markets to the domestic market and aggravated the market competition. The price of PTMEG in the domestic market therefore made a considerable reduction and was also lower than the price in the international market.

     (2) Sustained increase of supply

The capacity of pure MDI and PTMEG in China had a drastic expansion in 2005. Due to the completion of the 60 thousand t/a PTMEG by BASF in Shanghai (CCR2005 No.10) and the 160 thousand t/a MDI unit in Ningbo, Zhejiang province by Yantai Wanhua Polyurethane Company at the end of 2005, the capacity of PTMEG and MDI reached 135 thousand t/a and 280 thousand t/a. Spandex raw materials in China could therefore be self-sufficient. Of course, most of the output from the new capacity was not supplied to the market in 2005.

2. Spandex market

     (1) Price approaching cost

Due to the concentrated start of production for most of the newly added capacity in 2004, the competition in the spandex market was fiercer in 2005 and the price continued with the declining trend. The elimination of export quotas for textiles at the beginning of 2005 stimulated a drastic growth in the export of almost all textiles and the demand of spandex recovered rapidly. Due to the high inventory and the great worry over unduly rapid supply growth caused by the production of the new capacity, however, the price downturn appeared at the time of demand increase. The oversupply did not change in mid-2005 and the price of 40D spandex started to drop below the cost. Some producers suffered loss and others also had a production restriction afterwards. The textile trade friction between China on one side and Europe and the United States on the other cast a shadow over the entire textile market. The demand of spandex also had a considerable reduction and the situation that lasted till the end of 2005. Owing to the production restriction, the inventory was effectively controlled and most producers managed to achieve a balance between production and sales in the fourth quarter of 2005.   The price reduction margin reached 30% for 20D spandex and 17% - 20% for 40D spandex in 2005. The price of 40D spandex was below the production cost for most of the time in 2005 and the low price constituted the main reason for the loss in producers. The drastic price drop of 20D spandex was caused by the existence of some profit space, the increase in output proportion of 20D spandex and the aggravated competition in the market.

     (2) Supply deficit turning into surplus capacity

The capacity of spandex in China reached 216 thousand t/a in 2005, an increase of 58.9% over 2004. The new capacity was contributed by 5 major consumption provinces including Shandong, Jiangsu, Zhejiang, Guangdong and Fujian. The dry process was mostly used in the spandex production. The melt spinning process was only used in the small-scale expansion of individual units. The concentrated start of production for the newly added capacity in 2004 was the fundamental reason for the drastic price reduction of spandex in 2005.   The output of spandex in China was 110 500 tons in 2005, an increase of 10.5% over 2004. The average operating rate was only 51.2%. Main reasons were as follows: (a) The newly added capacity started to concentrate production at the end of 2005. (b) The production restriction made by spandex producers in the second half of 2005 helped achieve an output control in the domestic market.   The apparent consumption of spandex in China was 128 700 tons in 2005, an increase of only 0.2% over 2004.

     (3) Import reduction

The import amount of spandex in China was 24 400 tons in 2005, a drop of 26.7% from 2004. Main reasons were as follows: (a) The capacity in domestic producers had a sustained expansion and the supply amount in the domestic market increased. (b) Some foreign companies continued to make local production in China.   The 5 major import sources of spandex in 2005 were the same as 2004. The amount imported from Korea and Taiwan Province was however 49% and 36% lower than 2004 respectively. Besides the local production made by some Korea companies in China, another main reason was that the capacity expansion of spandex in China caused medium and low-end products imported from abroad losing competitive edge. The amount imported from Japan, Singapore and the United States had no great changes. It showed that the market position of high-grade spandex imported from abroad was still firm.

     (4) Export increase

The export amount of spandex in China was 6 227 tons in 2005, an increase of 27.7% over 2004. There were 9 new export destinations for spandex in 2005 and the total number reached 53. The amount exported to most of these countries and regions increased. It showed that domestic enterprises started their expansion to overseas markets.



Prospect for 2006

1. Improvement of market situation

The downturn trend in the China's spandex market is checked through production restriction, the inventory is gradually digested and the imbalanced supply/demand relationship is changed. The quality improvement of domestic spandex has stimulated a market share increase and such a trend will continue in 2006. As the product price has already approached the cost, the spandex production in other Southeast Asian countries will start to decline and the output will go further down. An opportunity for the expansion of overseas markets will therefore be provided to spandex producers in China. If the operating rate can be well controlled and the product price can be stabilized, the situation in the spandex sector in China will hopefully improve in 2006.

2. Slowdown of capacity growth

The capacity of spandex in China is expected to reach around 223 thousand t/a in 2006, an increase of 3.2% over 2005 and a period of stable growth will start. The output of spandex is expected to reach 125 thousand tons, an increase of 13.1% over 2005. High-grade spandex imported from abroad will still maintain a stable position in the domestic market, but the import amount of spandex may have a small marginal reduction. Domestic enterprises will actively expand overseas markets. Both the price and the quality of spandex produced in China have already aroused interest in many dealers. The export of spandex therefore had a sustained increase in the second half of 2005. The export amount in 2006 is expected to have reached 12 thousa