Is rayon market boom worth expecting in H1 of 2022?

Viscose industry chain traditionally has a good start after the Chinese Lunar New Year as the trading mood generally warms up after the Lantern Festival, lasting till the Tomb Sweeping Festival in early Apr, which is regarded as “Golden March and Silver April”. However, there has not been market boom since the start of lunar new year. Although prices for each like of the industry chain have gained ground, like 400yuan/mt for VSF, 300-500yuan/mt for rayon yarn and 0.07yuan/m for rayon fabric, the trading volume is extremely low.

VSF plants sold a number of fibers in advance before the Chinese Lunar New Year and spinners can generally consume the raw materials till mid-Mar, so they are not willing to be chasing up actively without more bulls after the holiday. It is also rational to see dull sales in VSF plants who are mostly fulfilling previous contracts. The pre-sales of most spinners is much less than that of VSF plants as yarns produced before early Mar has been sold in advance, but some vortex-spun yarn mills keep more pre-sales. According to current production and sales of spinners, stocks will be piled up rapidly. Less pre-sales before the Chinese Lunar New Year and low market activity afterwards indicates downstream demand and even sets the major tone in the first half of 2022.

Neither VSF plants nor spinners lower prices in spite of depressed sales. VSF plants are eager to quote firmly amid ample pre-sales and spinners do not chose to cut prices by considering several factors. (1). The implementation of previous orders will be obstructed by lowering prices, which is the same for VSF. Even if the prices are adjusted down at present, the trading volume cannot improve. (2). The stocks have been gradually piled up, which are endurable by the spinners who are waiting for demand recovery. (3). Spinners are unwilling to give up high profits due to high processing cost extending from last year and rising labor and energy prices has exerted great pressure on the cost.

On the contrary, traders immediately cut prices by witnessing weak sales. Take vortex-spun R30S and R40S, the spinners respectively offer around 17,600yuan/mt and 19,400yuan/mt, while traders keep the selling rates at 17,200yuan/mt and 18,400yuan/mt respectively.

The stalemate of VSF and rayon yarn is not supposed to last long, especially the latter. Yarn price will definitely drop to seek for support when the stocks of some spinners have been piled up to a certain extent. The demand has not been optimistic since the Chinese Lunar New Year and participants for each segment of the industry chain are suggested to be cautious in the first half of year.