End-user demand in urgent need to boost rayon market confidence

There is a sharp decline in cotton and PSF prices recently as the fluctuation of major contract has respectively reached 975yuan/mt and 694yuan/mt so far, so the mentality of the textile industry chain has been greatly affected. The commonality of the sharp decline is that the expectations are too full before the Spring Festival, and the recovery after the holiday is insufficient.

Going back to viscose industry chain, although the macro sentiment around the Spring Festival was good, and the increase of cotton and PSF prices was good as well, VSF plants have not fulfilled the expectations like the former two after the holiday, even under the background of low operating rate and VSF price just gained ground by 200yuan/mt. However, in the context of low processing fee and tolerable pre-sale orders, the spinners have witnessed a large price rise of yarns for various technology by 500-1,000yuan/mt.

The trading mood of rayon yarn market is weakening rapidly. It has been only two weeks since the rise of rayon yarn that some spinners are preparing to cut prices for sales promotions. Vortex-spun yarn is the wind vane of the yarn price trend and the offer of R30S is generally released around 16,000yuan/mt by the spinners after the Spring Festival, which is about 800yuan/mt higher than pre-holiday level. However, yarns sold below 15,500yuan/mt or even less than 15,000yuan/mt aroused more worries over yarns of other technology.

In fact, the inventory both is not high. Considering the pre-holiday orders and orders signed in the next two weeks, even if the order-taking is unsmooth, there is basically no pressure in February. However, the increase in the supply of will cause a lot of pressure. At present, with the improvement in profits, the cash flow has become positive, and the willingness of running the units has also increased significantly. Some spinning mills will continue to increase the operating rates with gradual return of the workers, so the supply of both VSF and yarn will increase.

To sum up, strong expectations are gradually being broken, and weak reality is dominant. The rise in the supply of VSF and yarn will weight on the industry in the short term, and the market outlook will depend on end-user demand.