• Key w/w moves: Cotton +2%; Polyester +4%; HW DWP 0%; China-origin DWP -2%, medium-grade VSF -3%; and high-end VSF -4% and Lyocell 0%. Cotton is now trading at a 4% premium to VSF (2021 average premium: 30%) and an 87% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 80% (2021 average: 94%) and the lyocell premium to VSF is currently 19%.
  • Cotton insights: New cotton supply will be arriving in large quantity mid-to-late Sep (especially machine-picked seed cotton). Cottonseed and cotton linter are likely to come under further supply pressure. Downstream plants are generally closed for 1-3 days for the Mid-autumn Festival and refined cotton may continue to be weak.
  • VSF prices down 3-4% w/w: The VSF operating rate is stable at 52% (from 52%) as some Jiangsu-based VSF units were shut for maintenance, while the facility in North China resumed operation. VSF inventory days ticked up further to 29.0 (from 27.5). The theoretical VSF margin for Chinese producers is deeper in the red at -USD 199/t and the VSF/DWP spread was down 6% w/w (-9% YTD). The VSF market may temporarily stabilize with improving sales this week, and the downside risk of VSF may be less in the next two weeks.
  • Lyocell market remains muted: Some lyocell yarn mills saw growing inventory and they were already cutting production. The operating rate of lyocell industry improved to 56% (from 48%). Some spinners kept slightly higher operating rates and saw significantly increasing inventory burden since the demand was not strong. Some large-scale lyocell plants were running at full capacity, with some new lines being installed.
  • DP prices stable: The DP market was relatively quiet. The spot hardwood price is stable at USD 1,125/t and the DWP/pulp spread is currently USD 261/t (this level generally supports preference for paper pulp production over DP production). Despite this, Hunan Juntai switched back to DP production this week. Sun Paper was still producing paper pulp with some stocks being available for sale. VSF plants continue to run with low operating rates and are unlikely to purchase DP in the ST.

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