- COVID
update: India is getting
worse (Mumbai cases spiking as well as new areas), which is being accentuated
by monsoon season. Despite this, they see another lock down unlikely.
- COVID
could mean less reliance on China: Global players may look to reduce their reliance on
China for VSF, this could be a catalyst for Grasim to expand capacity further.
When China was under lock down, Grasim saw increased demand from retailers,
despite Chinese VSF producers continuing to operate.
- Grasim
have not had any supply chain issues to date: Grasim is c.50-55% DWP integrated with operations in
Europe and Canada. In terms of future expansions, they are comfortable with DWP
supply availability. They are ramping-up VSF production now across most locations,
with an update on VSF utilisation to be provided in August. In our recent note
(Download Report), we estimated that their DWP requirements were
down at least 73% to 43kt/quarter.
- ST
demand outlook remains uncertain, while global retailers are struggling: In the US, Brooks Brothers filed for Chapter
11 bankruptcy protection, and this follows on from J.C. Penney, Neiman Marcus,
J. Crew and Chuck E. Cheese. Although Grasim remains a domestic VSF supplier,
they strongly believe that a textile recovery is dependent on Europe and North
America (more so than China). In India, Grasim are waiting to see if the
upcoming festive season (September-November) is a catalyst for demand to
resume. Non-woven continues to see uptick in demand (<30% of VSF demand).
- MT-LT
drivers of textile demand remain intact, in their view: In the next five years, they think viscose
will be biggest beneficiary. Customers continue to shift to more natural fibre
(used in clothing, curtains, towels etc.), with VSF gaining market share from
Cotton, which uses more chemicals and water and competes with agriculture for
land.
- Pricing
remains weak (June +1% m/m): A
few quarters back, they were nicely insulated in the domestic market.
Subsequently, there was a correction. In their view, pricing continues to be
irrelevant, as the market is not liquid at the moment. At current levels, VSF
producers simply cannot make good money.
- COVID-19
to flush out smaller VSF players in China: Utilisation in China remains around 60% (down from 70-80%
prior to COVID). At current prices, this is below the variable cost of most
producers – will take time to see how the shake-up is happening. Grasim has a
facility in China, which benefits from incentives, however, it would appear that
this in isolation is not enough to keep VSF producers afloat.
- Capacity expansion plans on hold: VSF expansion
from 566ktpa to 788ktpa postponed. In our view, this delay is likely to tie in
with SAP’s Saiccor expansion towards the end of September 2021. In July/August, Grasim will decide best plan
of action in terms of project.
- Next reporting date: Grasim are expected to report Q1 21e in
August (date to be confirmed).
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