• Key w/w moves: Cotton -5%; ICE cotton contract -5%; Polyester -3%; HW DWP 0%; China-origin -2%, medium-grade VSF 0%; and high-end VSF 0% and Lyocell 0%. Cotton is now trading at a 2% discount to VSF (2021 average premium: 30%) and a 70% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 74% (2021 average: 94%) and the lyocell premium to VSF is currently 23%.
  • VSF prices hold steady: VSF op. rate improved to 66% (from 65%) as operating rates in Shandong dropped last week, while in North China rates improved further. VSF inventory days down to 27.0 (from 28.0). The theoretical VSF margin for Chinese producers improves but remains in the red at -USD 229/t as domestic DP prices came under further pressure. The VSF/DWP spread was down 1% w/w (-14% YTD).
  • Lyocell market is under pressure with the start-up of new capacity, but producers have not shown signs of cutting prices aggressively: The supply pressure was alleviated with the falling operating rate of some units in North China. Sateri (Changzhou) officially started production without mass output temporarily. CTA shut its phase I and II lines for maintenance and other new units were still at preparation stage, except for Sateri (Changzhou), so the operating rate of lyocell industry was 47% (from 49%).
  • Domestic DP prices further in the red as there was modest restocking by buyers this week, but buying interest was not strong: The spot hardwood price is stable at USD 1,020/t and the DWP/pulp spread is currently USD 154/t (this level generally supports preference for paper pulp production over DP production). Domestic DP price was down 2% w/w to RMB 8,500/t (USD 1,172/t, a USD 152/t premium to imports). DP Chinese output remained at zero as major producers were producing paper pulp; however, some DP stocks were still available for sale.

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