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Insight | Time: Feb 27 2019 1:42PM
Who is to blame for dreary VSF market?
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During the first week back from Chinese Lunar New Year holiday, VSF market performed as it did in the past years as VSF plants adjusted up offers and spinners gradually raised operating rates. The market was typically recovering during the period.

However, the market trend started to deviate from that of past years since the second week. Downstream plants resumed operation faster in 2019 as the operating rate of rayon yarn mills already reached the average level, but VSF plants hardly saw improvement of sales.

Generally speaking, the demand in rayon market will gradually increase in the peak season after Chinese Lunar New Year holiday. Besides fast restart of rayon yarn mills, vortex-spun yarn witnesses good sales as some products are sold in advance. Moreover, ring-spun and siro-spun yarn over 40S also enjoy good sales. Ring-spun and open-end yarn below 30S keeps plain, but spinners are generally profitable.

VSF market keeps dreary after the holiday, which is largely because that VSF plants in order to alleviate inventory burden during the holiday generally sold products at low price in advance and post-holiday demand has been pull forward by spinners. After the holiday, rayon yarn mills choose to absorb stocks to reduce capital occupation without further bullish expectation.

VSF plants have been troubled by high inventory. It can be seen that VSF inventory has been rising in fluctuation since Oct, 2018 and it even hit new highs after Chinese Lunar New Year. However, the following data can just be taken as the reflection of inventory burden instead of the actual figure due to different statistic caliber of VSF plants.

The fundamental cause of high inventory is significant increase of supply. It can be seen that VSF output in the first half of 2018 is decreasing on yearly basis, but it starts to improve obviously with start-up of new units in the second half of year. The higher y-o-y increase of monthly production exceeds 70kt and there has been high-speed growth for consecutive six months. The increment of 40-70kt is obviously huge compared with monthly output of 300kt when new markets are not explored.

High-speed y-o-y growth of VSF output is hard to be removed in the short run, so VSF inventory is hard to decline effectively. Under the background of higher inventory, downstream buyers will be passive in procurement, then negative cycle emerges.

There is no good solution to current plight. Production cut and price stabilization is just a theoretical solution, which hardly has maneuverability in actual operation, so VSF market is likely to sink into war of attrition. During the period, maintaining current customers, actively exploring downstream demand and searching survival method are possible options for VSF plants.
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