• Key w/w moves: Cotton -2%; Polyester +3%; HW DWP +1%, China-origin DWP flat%, high-end VSF +1% and Lyocell flat w/w. Cotton’s premium to VSF has narrowed further to 61% (2021 average: 30%) and a 170% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 68% (2021 average: 94%).
  • VSF prices gain further traction: The VSF operating rate is now 84%, up from 82%. VSF inventory days now at 19 days (down from 20). The theoretical VSF margin for Chinese producers is further in the red at -USD 58/t & the VSF/DWP spread is flat w/w (+16% YTD). The VSF market appears bullish in terms of further price increases, however, there is uncertainty on the influence from Ukraine-Russia tensions and the recovery of demand needs further observation, so it is hard to estimate how long and how much this round of price rise can last.  
  • Hardwood DWP prices edge up further: In the Chinese market, a pulp mill located in Central China was producing paper pulp, while a Shandong-based one was producing DWP with its products being sold in advance. Pulp mills who were ready to release new offers showed strong willingness of price increase, which was spurred by tighter DWP supply (more mills have swung to paper pulp than expected) in the spot market as well as rising VSF price this week. The spot hardwood price is now
    USD 925/t and the DWP/pulp spread is currently USD 266/t (this level generally supports preference for paper pulp production over DWP production).  
  • Sappi read-though: The imported hardwood DWP price averaged USD 908/t during Jan-Feb 2022. If the spot price holds for March, the average price for Jan-March 2022 will be
    USD 914/t. This is ahead of forecast of USD 905/t. If the spot price were to hold until the end of June, this would increase our Sappi FY 22E EPS by 3% to USD 0.81/share. We remain OVERWEIGHT, TP R 88.41/share.

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