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Insight | Time: Mar 8 2021 3:15PM
Why lyocell hard to jump like other fibers?
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Prices of most fibers rose sharply in the first two months of 2021 and many products saw the growth of more than 30%, while lyocell fiber just edged up by around 6%, whose increase was even less than that of dissolving pulp. In other words, by the end of Feb, although the price of lyocell fiber had been higher than that at the end of 2020, the profit decreased notably.

Price change of major fibers (unit: yuan/mt)
Product Dec 31, 2020 Feb 28, 2021 Change
Cotton 3128 15,200 16,645 10%
PSF 1.4D*38mm 5,885 8,075 37%
Medium-grade VSF 11,380 15,600 37%
Nylon 6 DTY 70D 17,000 19,400 14%
Polyester POY 75D 6,040 8,085 34%
Spandex 40D 37,800 58,000 53%
Imported hardwood dissolving pulp ($/mt) 730 1,050 44%
Lyocell fiber 15,920 16,800 6%

As the raw material of chemical fiber, lyocell fiber is even known as the green fiber of the 21st century due to its excellent performance and clean production process. Why the performance in the first two months of 2021 is not as good as that of most fibers?

Let us look at why most other fibers can rise sharply. Jan-Feb is generally the slack season of textile industry and China鈥檚 Lunar New Year holiday is during that period when demand is hard to burst. In addition, the increase during the period is mainly concentrated in fiber, while end-user products rising slowly is obviously not the driving force, so it is hard to say that the rise in fiber price is boosted by demand.

The supply structure of several major fibers is quite different, so it is obviously difficult to simply attribute the price hike to supply side when the output of most fibers is relatively normal during Jan-Feb.

We believe that currency is the fundamental reason for the rapid rise in Jan-Feb. After the outbreak of the COVID-19 last year, there was increasing liquidity in the world including the United States, which had aroused worries over inflation. However, prices of most chemical fibers fell to lower level due to reduced demand after the COVID-19 outbreak last year, and some even hit historical lows. Take VSF as an example, the lower price in the middle of 2020 had fallen to around 8,300yuan/mt, which was significantly lower than the low point after the financial crisis of 2008 and also lower than the level during the period in 2015 when simultaneously dealing with the slowdown in economic growth, making difficult structural adjustments and absorbing the effects of previous economic stimulus policies. Even though the demand began to recover and VSF price moved up slightly after Oct, the price still failed to reach above the two low points by mid-Dec.

VSF as a kind of chemical fiber raw material is highly standardized, easy to store and circulate, and it also has inelastic demand, so it obviously has asset attributes. Whether it is for asset appreciation, control of raw material costs, or just for asset preservation, downstream companies are worth buying on large quantity at that time. Of course, there is expanding demand with the introduction of "stay-put" measures during Spring Festival. The asset attributes as well as continuous improvement of the supply and demand relationship has strengthened the subsequent gains.

And this attribute is just what lyocell fiber lacks. Although the concept of lyocell fiber is good, it is still in the initial stage of development in China, and the fiber quality of Chinese companies is still improving. Therefore, standardization is temporarily low, and the entire industrial chain is immature. Domestic enterprises using lyocell fiber take up small percentage, and the fiber is not easy to circulate and part of the demand is not rigid, so it basically has no asset attributes.

Lyocell fiber capacity is rapidly expanding. By the end of 2020, China's lyocell fiber capacity will exceed 200kt/yr, and the actual utilization rate is less than 50%. At the same time, there is still more than 100kt/yr capacity under construction. Immature applications as well as fast supply growth has led to imbalance between supply and demand. Under this circumstance, the price lacks strong upward momentum and the profit continues to be squeezed as expected.

Of course, it is normal to face various difficulties and challenges during start-up cycle of the industry. Lyocell fiber relies on its excellent fiber performance, clean and sustainable development concept, coupled with the growing industrial chain system whose future is still optimistic. But it is an urgent issue to overcome the current dilemma and push the industry to enter the growth cycle as soon as possible.

In view of such situation, Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) plans to hold the first Lyocell Fiber Industry Forum simultaneously with the 15th China Hanghzou Cellulose Fiber (Viscose) Industry Form (2021).
[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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