• Key w/w moves: Cotton -4%; Polyester -4%; HW DP +4%; China-origin DP +1%, medium-grade VSF +0%; and high-end VSF +1% and Lyocell +2%. Cotton’s premium to VSF is 27% (2021 average: 30%) and a 119% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 73% (2021 average: 94%) and the lyocell premium to VSF is currently 13%.
  • VSF offers kept rising with modest sales this week (prices up 0.4-1.2%): The operating rate of some VSF plants in North China was slightly volatile and the unit located in West China resumed operation without fibres being produced yet. Accordingly, the VSF operating rate dropped slightly to 74% (from 75%). VSF inventory days tighten further to 12.0 days (from 12.5) as spinners held more VSF stocks. The theoretical VSF margin for Chinese producers weakened further to -USD 128/t on the back of higher DP prices and the VSF/DWP spread dropped 4% w/w (+13% YTD).  
  • The Lyocell price was up 2% w/w: The operating rate improved from 50% to 52% as Jiangsu Kinyongta restarted production.
  • DP prices gain further traction: The spot hardwood price is stable at USD 1,190/t and the DP/pulp spread is currently USD 355/t (this level generally supports preference for DWP production over paper pulp production). Chinese DP production for June has been sold out. The operating rate of Chinese DP mills improved as Hunan Juntai resumed DP production and Sun Paper maintained DP production. In the import market, more offers were released for hardwood DP. Two European pulp mills offered at USD 1,200/t and Thailand-origin pulp was subsequently offered at the same level.
  • The Uyghur Forced Labour Prevention Act (UFLPA) becomes effective on 21 June 2022: The act allows US customs to detain imported goods that are made with forced labour. With importers now bearing the burden to produce proof of compliance, the US government is expected to release policy guidance related to textiles using cotton sourced from Xinjiang. As a reminder, Xinjiang accounts for c.20% of global cotton supply (c.80-85% of China’s production) and the US imports c.15% of its cotton apparel from China.
  • China May macro update: Consumer good sales dropped 6.7% y/y; Industrial added value increased 0.7% y/y; Fixed asset investment rose 6.2% y/y; real estate development investment dropped 4% y/y for Jan-May; Commercial residential house sales declined 31.5% y/y for Jan-May; Social electric power consumption rose 2.5% y/y for Jan-May.

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