Possible demand shift with narrowing price spread of cotton, lyocell and VSF

The spread of cotton, VSF and lyocell is widening as cotton price has shed by almost 3,000yuan/mt to around 20,000yuan/mt, while VSF and lyocell keeps rising. The gap between cotton and VSF has narrowed to 4,800yuan/mt from more than 10,000yuan/mt and that between cotton and lyocell has been reduced to 2,800yuan/mt from 8,500yuan/mt, respectively shrinking by more than 50%.

At the same time, losses of cotton yarn are decreasing. However, rayon yarn and lyocell yarn is under increasing pressure of suffering losses. The theoretical of the three products based on current raw materials is more or less similar, but the actual loss is limited for the latter two with the support of low-priced raw materials that are using. Besides losses brought by cost, spinners also express worries over the inventory resulting from flat sales.

Cotton price of China is falling, while VSF and lyocell has risen to a higher level, coupled with increasing risk but falling price-performance ratio and attraction, so the companies that increased cotton and lyocell percentage in production due to higher cotton price and heavy losses for a long time may switch back to cotton products. Moreover, traditional downstream plants of cellulose fibers are gradually controlling the production and the weaker demand is conducting to upstream sector.

In addition, ban on Xinjiang goods by the US is noteworthy. When cotton price outside China is still high, VSF and lyocell still has better substitution in in terms of price and performance.