How will the epidemic affect VSF consumption?

Since the National Health and Medical Commission released the new ten measures for epidemic prevention on Dec 7, 2022, Chinese strict prevention and control measures have been basically lifted, which is generally interpreted as a positive factor by the commodity market, and consumption is expected to recover in 2023, so it is reflected in both price and trading volume. The same is true for the viscose industry chain.

From the aspect of rayon yarn, after the release of the new ten measures for epidemic prevention, vortex-spun yarn took the lead in trading on large quantity, but the main participants were traders, and the transaction volume of yarns of other technology has also continued to rise since then. Many spinners had already decided to take a holiday ahead of time (they would gradually suspend operation after New Year’s Day), but the shift of the trading atmosphere has changed the attitude of spinners who will cancel the plan for taking a holiday earlier. In addition, after sales have improved, yarn offers also continued to go up. Compared with the previous low price, vortex-spun yarn has risen by 1,500yuan/mt, but fresh business is scarce after the price increase.

The trading atmosphere of yarn was also transmitted to VSF. In mid-Dec, the major VSF plant released new offers. Downstream buyers originally expected price reduction by about 1,000/mt, but there was actually a decline of about 200yuan/mt. There was even no price drop for some big customers. Even when the decline was lower than downstream expectation, buyers were still actively purchasing fibers for about 2-month consumption in general, and some even want to purchase the raw materials for quarterly consumption. Therefore, with the relaxing of the epidemic control policy, both yarn and VSF ushered in a wave of increasing sales volume, which was also a concentrated release after the suppression for half a year of in multiple links of the industry. However, traders accounted for a large proportion in this round of yarn trades, so speculation is more regarded as the nature for this wave of increasing sales, and the same is true for the transmission to VSF.

When yarn and VSF was changed hands intensively, the disadvantages of the relaxing of the epidemic control policy gradually emerged. The number of COVID-19 infections in early-to-mid-Dec rose sharply with fast spread from North to South China. Most employees in the factories lost their ability to work in the short term after being infected with the epidemic, so the factories are hindered both in production and logistics. Some of them have temporarily stopped production, and reschedule to take a holiday ahead of time, which is more obvious in fabric mills. Under the influence of the epidemic, the Spring Festival holiday in VSF downstream sectors will still be prolonged, which will lead to the extending consumption cycle of VSF and yarn that has been traded intensively.

The spinners may take a holiday about 4-20 days more than they did in past years, so the consumption rhythm of VSF will be extended by the same period. According to the general procurement of spinners, the raw materials could be used until early-to-mid-Mar in average, thus VSF plants that maintain production during the Spring Festival will still face great selling pressure for the next stage. However, it is another matter then the production is passive reduced due to the impact of the COVID-19.