Viscose industry chain ready to rise

After the Spring Festival, all links in the viscose industry chain are gradually resuming work. At present, VSF plants have basically resumed operation, and most rayon yarn and fabric mills slowly restarted production after the sixth day of the Lunar New Year, while dyeing mills will mostly resume operation after the tenth day.

Although the trading mood of the industry chain is still modest, judging from the competing products and consumption data around the Spring Festival, there are bullish expectations. The major contracts of cotton and PSF rose by 445 yuan/ton and 418 yuan/ton respectively one week before the Spring Festival. The consumption during the Spring Festival is mainly contributed by tourism, travel and movie. Among them, the data center of the Ministry of Culture and Tourism estimated that there were 308 million domestic tourist trips nationwide, a year-on-year increase of 23.1%, which recovered to 88.6% of the same period in 2019. In terms of travel, according to estimates from the Ministry of Transport, in the first five days of the Spring Festival holiday in 2023, a total of 131.15 million passengers were sent by railways, highways, waterways, and civil aviation in China, recovering to 52.2% of the same period in 2019. In terms of movie, according to Maoyan Professional Edition data, as of 9:00 pm on Jan 27, the total box office of the Spring Festival in 2023 was 6.724 billion yuan, ranking second in the box office of the Spring Festival in Chinese film history. After the Spring Festival, cotton and PSF suppliers are more willing to raise offers, and the increase of cotton yarn and polyester yarn tends to be more than 500yuan/mt. In addition, the second large-scale infection of the epidemic did not occur during the Spring Festival. Therefore, China's consumer confidence and economic recovery expectations are strong.

As for the viscose industry chain, there was a wave of concentrated transactions in VSF plants and spinners before the holiday, and the inventory dropped significantly. For VSF plants, since the units kept running during the Spring Festival, the inventory rose rapidly. There were about 11 days from Jan 17 when the logistics basically stagnated to Jan 28 when downstream plants could receive the goods again after back from holiday. During this period, the inventory saw a net increase, but compared to pre-sales of VSF plants at 1-month level before the holiday, even if there was a net increase of 11 days, the logical inventory pressure was not large. Downstream yarn mills did not see large-scale secondary infections during the Spring Festival, so the main rayon yarn production areas of China basically resumed work after the holiday (Fujian-based spinners resumed work later due to independent holiday arrangements), and the cycle of VSF consumption is not expected to be significantly extended. Most spinners built up stocks for consumption till the end of Feb or the beginning of Mar, partially till mid-to-late Mar. Therefore, for VSF plants, the focus is on the sales in Feb. If the sales are not good, there may be greater pressure at the end of Feb.

For rayon yarn mills, although there were increasing sales before the holiday, the situation was not as good as that of VSF plants. The trading volume was mainly contributed by vortex-spun yarn mills. Although yarns of other technology partially performed better, the overall performance was not strong. However, the spinners with low trading volume also cut or suspended production or took a holiday ahead of time (i.e. spinners in Changle were generally closed for holiday before New Year's Day), so the spinners were not under big inventory pressure after the Chinese Lunar New Year. Traders accounted for a large proportion of the targets doing business with spinners before the holiday. Even if the targets were fabric mills, most of the yarns were transferred to feedstock inventory so the downstream social stocks will be relatively sufficient after the holiday.

To sum up, as far as the industrial chain is concerned, although the inventory of spinners and VSF plants is not large, it is still a performance of shifting inventory, and it finally depends on consumption. The expectation of China's economic recovery is relatively strong, the capital is relatively abundant, and the willingness to increase the price of cotton and polyester products is also strong. Therefore, the viscose industry chain is also expected to rise.