Is VFY market under big pressure in H2 of the year?

VFY price was volatile in the first quarter of this year, but it had been stable since the end of Mar. Around the Spring Festival, downstream plants tried to talk down prices. However, VFY companies responded with price increase and stabilized the expectations. In the second quarter, there was an increased sensitivity to prices from the demand side, leading to a slowdown in sales. However, VFY plants showed a strong intention to maintain stable prices, contributing to an overall stabilization of the market.

Chinese domestic market demand has shown some recovery compared to the previous year, while exports have declined. There were concerns in the earlier period about foreign exchange constraints in Pakistan, which affected exports. However, there has also been a slowdown in orders from major destinations such as India and Turkey. Overall, in the first half of the year, the market maintained a certain steady trend, supported by previous orders and inelastic demand both at home and abroad. However, starting from the second quarter, there has been a gradual accumulation of inventory.

China exported 39.422kt of VFY (H.S. code: 54033190) in the first half of 2023, a year-on-year decrease of 24.46%, with an average export volume of 6.57kt during the period under review. If we take into account the trend of consumption downgrading caused by the global economic situation, the probability of a short-term improvement is not high. Therefore, the forecast for VFY export in 2023 is expected to drop to around 80kt.

With the relaxation of China's epidemic control policies, the domestic market in 2023 is expected to warm up to some extent, but the exports decline on yearly basis, and the supply is likely to see an increase in production, which may exert pressure on prices and create sales pressure. Overall, the operation pressure of VFY in 2023 is relatively manageable, and profitability can be maintained despite the possibility of weaker price.