Will faster decline of rayon yarn price weigh on VSF?

Since early Nov, rayon yarn market has started to decline, and the downward trend has accelerated recently. The phenomenon of selling off goods has gradually increased, mainly depending on compact siro-spun and vortex-spun yarn. The main reason for the sell-off is to reduce inventory and withdraw capital, as well as the weaker expectation.

The sell-off of rayon yarn can be traced back to Aug. After a month of increase from Aug, the yarn mills had good pre-sales, especially in the vortex-spun yarn. Subsequently, due to expectations of strong sales in Sep and Oct, and the good pre-sales in the previous period, most yarn mills kept firm prices. Only a few ones adjusted their prices flexibly according to market conditions. As a result, the market entered a stalemate for nearly two months. Due to different pre-sales volumes, some spinners with insufficient pre-sales started accumulating inventory earlier than others. For example, it was rumored that some large mills in Fujian had 2-month inventory of compact siro-spun and siro-spun yarn before the goods were undersold. Taking compact siro-spun R40S as an example, the price during the stalemate period reached as high as around 21,000yuan/mt, and the rumored sell-off price is currently as low as 19,000yuan/mt, resulting in a decrease of 2,000yuan/mt.

The situation is different for vortex-spun yarn. Although the inventory of vortex-spun yarn mills has increased, it is generally within an acceptable range, with only a few ones having higher inventory. The main reason for their sell-off is the expectation of weakening raw material prices. Taking vortex-spun R40S as an example, the price during the stalemate period reached a high of 18,200yuan/mt (with relatively low trading volume), and the current rumored sell-off price is as low as 16,200yuan/mt, also a decrease of 2,000yuan/mt.

Since compact siro-spun and vortex-spun yarn have experienced significant declines, it is expected that other types of yarns will quickly follow down, and this will also put downward pressure on VSF. Based on the current prices of around 19,000yuan/mt for compact siro-spun R40S and 16,200yuan/mt for vortex-spun R40S, VSF may drop within 12,500yuan/mt. However, the inventory of VSF plants is still not high at present, so the sales strategy of VSF companies will still play a role in the future market trends.