• Key w/w moves: Cotton 0%; ICE cotton contract -5%; Polyester +1%; HW DWP 0%; China-origin 0%, medium-grade VSF -1%; and high-end VSF -1% and Lyocell 0%. Cotton is now trading at a 4% premium to VSF (2021 average premium: 30%) and an 86% premium to polyester (2021 average: 150%). The VSF prexmium to polyester is currently 78% (2021 average: 94%) and the lyocell premium to VSF is currently 19%.
  • VSF prices down 1% w/w: The VSF operating rate improved to 58% (from 52%) as some VSF units in Central and North China resumed operation. Spinners increased delivery of VSF on the back of rising operating rates. VSF inventory days down to 28.0 (from 29.0). The theoretical VSF margin for Chinese producers is deeper in the red at -USD 207/t and the VSF/DWP spread was down 4% w/w (-13% YTD). Viscose industry forum to be held in Hangzhou next week.
  • Lyocell market remains muted: The operating rate of lyocell industry was stable at 56% (from 56%). Lyocell was mainly stable without highlights in China local market and minor improvement in the export market (quantity was limited though). Lyocell market likely to remain under pressure as some new lines may be running on trial basis next week and there are two more lines to start up and one line may come back on stream in the next month, so
  • DP prices stable: 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). Hunan Juntai maintained DP production and delayed its maintenance plan. The production schedule of Sun Paper was unclear but there were still DP stocks available for sale.
  • Lenzing provided a grim update yesterday, despite reaffirming earnings guidance on 3 August: Lenzing suspended its FY 22E guidance due to limited market visibility and high volatility of energy and raw material markets. Lenzing highlighted a “drastic deterioration” of the market environment in the current quarter as well as “extremely low visibility”. Lenzing also cautioned around risk of not achieving its MT guidance for FY 24E (net debt/EBITDA <2.5x; EBITDA of EUR 800mn and ROCE >10%) based on current estimates for energy and raw material costs. We note that H1 22A revenue was up 25% y/y, while EBITDA was down 13% y/y. Recap on guidance provided at the H1 22A results on 3 August: “The highly uncertain supply situation and increased costs for energy and raw materials as well as supply chain disturbances lead to currently extremely challenging market environments and further reduced visibility” and “Due to first margin contributions from its two new production sites, the Lenzing Group continues to expect EBITDA in 2022 significantly above 2021 levels” (FY 21A EBITDA: EUR 362.9mn). Lenzing is expected to host its 2022 CMD on 18 October.

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