- Key w/w moves: Cotton +2%; Polyester 2%; HW DWP -5%; China-origin DWP -1%, medium-grade VSF 0%; and high-end VSF -1% and Lyocell 0%. Cotton is now trading at a 5% premium to VSF (2021 average premium: 30%) and a 99% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 89% (2021 average: 94%) and the lyocell premium to VSF is currently 16%.
- VSF prices under further pressure: The VSF operating rate reached a decade low of 55% (from 62%) with large-scale maintenance of VSF units in North China and Xinjiang. VSF inventory days ticked up further to 26.5 (from 25.0). The theoretical VSF margin for Chinese producers remains in the red at -USD 174/t and the VSF/DWP spread increased by 5% w/w (-2% YTD). Spinners are not running with high operating rates. Textile orders are showing signs of weakness and market participants are generally less confident about the peak season in the third quarter.
- Lyocell market was stable to weaker without big changes of prices from major producers: The operating rate of lyocell industry fell to 48% (from 50%) with fluctuating run rate of some units.
- DP prices under further pressure, however, remain healthy: The spot hardwood price is USD 1,140/t and the DWP/pulp spread is currently USD 274/t (this level generally supports preference for paper pulp production over DP production). The production of Chinese DP was not clear as it was rumoured that Sun Paper (Zoucheng) converted to paper pulp and Hunan Juntai was temporarily producing paper pulp. Bargaining power is gradually transferring to downstream segment affected by the extreme production cuts by VSF plants.
- July China economic data weak: Consumer goods retail sales +2.7% y/y; commercial house sales -23% y/y (Jan-July). The China Meteorological Administration issued the first drought alert in 2022.
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