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Insight | Time: Oct 17 2019 11:27AM
Proactive rayon yarn mills
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Market participants described China textile market as "very disappointing" in 2019. "Gold Oct and silver Sep" that was eagerly awaited was discounted. Although demand improved, both the price and the orders shrank too much. Amid approaching late-Oct, it's been a month since the market improved somewhat last time, and it was not hard to understand why downstream market adjusted earlier than VSF one.

Operating rate of rayon yarn

As to supply, operating rate of rayon yarn mills rebounded somewhat after the National Day holiday. In addition to various factors such as orders and workers, replenishment of raw materials at low prices before the holiday also eased the profit pressure. Therefore, spinners showed stronger willingness to produce products and inventory moved up. In addition, inventory was higher than that in same period of past years. Although the distribution was relatively different, as long as spinners gave discounts amid high inventory burden, overall market expectations and trends were bound to be affected.

What about the demand of rayon yarn? It is the traditional dull season in the fourth quarter, and orders decrease and capital burden are the main influencing factors near end-2019. In addition, the Spring Festival holiday falls earlier in end-Jan of 2020, both operating rate and trading began to decline ahead of schedule. This time point coincides with New Year's Day, which means that spinners have only two months to destock.

Even if trade talks improve somewhat, the stimulation on rayon yarn is minimal. Under this expectation, profits that has just improved is the choice that some yarn mills use to promote sales. It is better to sell stocks early and prepare for the New Year than to quote firmly, so there are discounts of rayon yarn despite tentative VSF price increase after the holiday.

Stable price may be hard to stimulate sales but can remain downstream replenishment, and discounts may promote sales but it is also easy to cause downstream panic. Different choices have their own advantages and disadvantages, but it is a challenge for all parties in the market during the fourth quarter.
[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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