• Key w/w moves: Cotton +3%; ICE cotton contract -3%; Polyester +3%; HW DWP -3%; China-origin -1%, medium-grade VSF 0%; and high-end VSF 0% and Lyocell 0%. Cotton is now trading at a 3% premium to VSF (2021 average premium: 30%) and a 74% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 70% (2021 average: 94%) and the lyocell premium to VSF is currently 23%.
  • VSF prices hold steady: VSF op. rate improved to 65% (from 61%) as some VSF units in North China restarted production and there was improving operation of the units in Xinjiang. VSF inventory days tick up slightly to 28.0 (from 27.5). The theoretical VSF margin for Chinese producers is deeper in the red at -USD 239/t driven by higher caustic soda and coal prices. The VSF/DWP spread was flat (-13% YTD). Some VSF plants released the intention of price increase during the National Day holiday on the back of higher costs.
  • Lyocell market stable but rumours of lower prices: The operating rate of the lyocell industry came under pressure reaching 49% (from 51%) as CTA shut the phase I and II lines for maintenance, Sateri (Changzhou) was under commissioning and Jiangsu Kinyonta was likely to resume operation in Oct. Lyocell yarn saw weak sales recently due to less confidence towards some lyocell products with falling cotton prices (Xinjiang-origin cotton was difficult to be delivered to other provinces of China).
  • Domestic and imported DP prices in the red but trades improve as VSF plants show increased buying interest at current prices: The spot hardwood price is down 3% w/w to USD 1,020/t and the DWP/pulp spread is currently USD 156/t (this level generally supports preference for paper pulp production over DP production). Domestic DP price was down 1% w/w to RMB 8,700/t (USD 1,207/t, a USD 187/t premium to imports). No DP was produced in the Chinese market as Sun Paper and Hunan Juntai kept producing paper pulp. Limited DP stocks were still available for sale. Temporary tightness of cotton supply in East China could support lyocell demand needs; however, there is more lyocell capacity set to enter the market.

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