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Insight | Time: Oct 29 2020 3:07PM
Rayon yarn: demand warms up but profit not easy
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In "crazy" October, after VSF rose by 5,000yuan/mt at the end of September, it then picked up further by 1,500yuan/mt. PSF increased by about 1,000yuan/mt and cotton rose by 2,000yuan/mt from that in early this year. In the first half of the month, strong trading sentiment shrouded in the market, while it rapidly cooled down in the second half. Cotton and polyester also fell by 500-1,000yuan/mt, and viscose was also affected but relatively kept strong.

It has been mentioned many times before that VSF experiences a longer period of price volatility without futures. Despite the recent slowdown in fresh orders, under the support of a large number of pre-sales, if VSF plants intended to quote firmly, orders can maintain production through end-2020. Instead, there will be fewer high-priced deals.

The bounce of the market was inseparable from the change of supply and demand. On the one hand, VSF operating rate cannot rapidly increase due to the limitation of feedstock and other factors. On the other hand, as downstream yarn operating rate recovered basically and optimistic mood spread in intermediate links, the whole market gradually crawled out of the shadow of relative surplus and deep loss.

However, not the blindness is optimistic. Although yarn exports in the third quarter led to the first wave of price increase, surge in October was driven by early loss burden. It can be seen that the profit of rayon yarn was still difficult, and the grey fabric with an increase of 0.3yuan/m also can't endure the excessive high feedstock increase.

Market expectation for the recovery of demand improved despite COVID pandemic, especially for the spring and summer orders in the coming year and the confidence in the peak season after the Spring Festival. In addition, the inventory of finished products in each link is at a low level. Therefore, more spinners may have holiday plan for the Spring Festival and the willingness of purchasing feedstock will increase, which means that VSF demand can be supported. But if the supply side is still limited, then yarn mills can purchase amid elastic demand, unlike that in the past two years. In addition, the participation of intermediate links will undoubtedly enlarge the fluctuation range of the market. Therefore, from the point of view of yarn and fabric, in addition to sales, it is necessary to improve the grasp of raw material market and procurement nodes.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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