Time to purchase VSF when tumbling for the second time in Dec?

Large-scale VSF plants lowered prices for the second time in Dec on Friday, falling from 13,000yuan/mt to 12,200yuan/mt, which was as high as 14,200yuan/mt at the beginning of month.

New prices have attracted much attention and some downstream companies are considering about the necessity of procurement and the volume of building up stocks. According to the contacts with limited downstream buyers, the viewpoints are divided into two groups, with participant faction in the majority.

Viewpoint of participant faction:

1. VSF is underpinned by cost. Pulp price declines slowly and chemicals rebound this week. According to CCFGroup’s data, the theoretical loss of VSF exceeds 1,000yuan/mt again.

2. VSF has been traded in bulk in Fujian-based large-scale plant, which is almost true according to CCFGroup’s investigation and major producers will rarely publish lower prices before Chinese Lunar New Year at the end of Jan.

3. Due to losses of VSF industry, other plants are less likely to announce much lower prices than the one released by major company on Friday and the cost of VSF plants in North China is hard to be lower than that of South China in winter.

4. At present, VSF plants do not have high inventory and spinners are running well, so the influence will occur after Feb even if the Spring Festival is taken into account.

Viewpoints of wait-and-see faction:

1. VSF loss has not hit the peak within the year and some buyers expect the price no higher than that of Sep.

2. End-user demand has been unsatisfactory since Nov. Yarn market is lack of highlights and some yarns are even unsalable.

3. Weaving mills may be close for Chinese Lunar New Year holiday earlier versus past years.

There is objective evidence for both sides, but according to our observation, participants who wait and see generally consider the post-holiday trend and there is uncertainty on demand recovery. As far as pre-holiday market is concerned, participants’viewpoints are more close to the major contradiction and buyers can rationally purchase VSF during this round of decline.