• Key w/w moves: Cotton -5%; Polyester -2%; HW DWP +1%; China-origin DWP +1%, medium-grade VSF 0%; and high-end VSF 0% and Lyocell 0%. Cotton’s premium to VSF is 7% (2021 average: 30%) and a 98% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 85% (2021 average: 94%) and the lyocell premium to VSF is currently 14%.
  • VSF price stable: The VSF operating rate moderate slightly to 78% (from 80%) as a VSF unit located in West China was shut for maintenance again. VSF inventory days stable at 12.0 days. The theoretical VSF margin for Chinese producers further in the red at -USD 149/t and the VSF/DWP spread declined by 1% w/w (+10% YTD).
  • The Lyocell price remains stable: The operating rate improved to 57% (from 52%) as the capacity utilization of CTA’s phase III unit improved and Shandong Yingli would resume operation. However, there is less demand for lyocell now due to lower cotton prices, so it’s hard to see further price increase for lyocell.
  • DP prices edge up further: The spot hardwood price is now
    USD 1,210/t and the DWP/pulp spread is currently USD 368/t (this level generally supports preference for DWP production over paper pulp production). Chinese DP mills maintained higher operating rates. Although there was tighter supply of wood chip in East China, there was no clear conversion plan by the pulp mill.
  • DP supply to improve as Arauco is set to partially restart its Valdivia BEK/DP pulp mill (500ktpa) by mid-September: A small, temporary drying machine will be assembled, which is expected to allow partial production to resume in mid-September 2022. Arauco will continue to work on repairing the drying machine until April 2023, when full production capacity is expected to be restored. This mill accounts for c.7% of global DP supply and c.25% of spot DP volumes sold globally.
  • May 2022 DP imports were down 5% m/m and 9% y/y to 303kt: Imports from Indonesia, Laos and Chile increased on both monthly and yearly basis, but there was a notable decline on yearly basis from Brazil. The imports from Finland decreased much on both monthly and yearly basis and signs showed that those might be left-over stocks. There might be no imports from Finland temporarily.

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