• November 2022 key prices changes: The imported hardwood (HW) DP price averaged $ 952/t (USD: -8% m/m & +2% y/y; ZAR: -11% m/m & +15% y/y). The DP/pulp spread averaged $ 87/t. Medium-grade VSF was down 3% m/m & -18% y/y.
  • Key w/w moves: Cotton +2%; ICE cotton contract -3%; Polyester -1%; HW DWP -2%; China-origin -1%, medium-grade VSF -2%; and high-end VSF -1% and Lyocell -1%. Cotton is trading at an 8% premium to VSF (2021 average premium: 30%) and a 102% premium to polyester (2021 average: 150%). The VSF premium to polyester is currently 86% (2021 average: 94%) and the lyocell premium to VSF is currently 27%.
  • VSF prices down 1-2% w/w: VSF op. rate dropped to 63% (from 69%) as some units in North China were shut for maintenance. VSF inventory days increased further 28.5 (from 27.5). The theoretical VSF margin for Chinese producers improved but still in the red at -$ 139/t on the back of lower DP prices. The VSF/DWP spread was up 1% w/w (-6% YTD). VSF plants are inclined to cut production and the pressure of lowering prices has been eased. Market participants have retrieved some confidence with improving vortex-spun yarn sales this week. However, downstream sector has not recovered thoroughly, and some plants still plan to take a holiday ahead of time. VSF industry inventory is currently >200kt and CCF expects this to be c.280kt by the end of Dec and may exceed 450kt after the Chinese Lunar New Year holiday. Under normal circumstances, the storage capacity of the industry is generally within 300kt. VSF plants are likely to remain under downward pressure before the Chinese Lunar New Year (23 January 2023).
  • Lyocell market under further pressure: The operating rate of lyocell industry remains low at 42% (from 40%) as a Lyocell unit in Hubei resumed operation with the relaxing of China’s pandemic prevention and control policy, but a Hebei-based unit remained closed and other plants also maintained lower run rates. Spinners had higher yarn inventory with limited orders from downstream sector, and there was less enthusiasm for lyocell procurement accordingly. Lyocell market to remain under pressure on the back of weak orders and increasing supply.
  • DP prices under pressure across the board: The spot hardwood price was down 2% w/w to $ 910/t and the DWP/pulp spread is currently $ 44/t (this level generally supports preference for paper pulp production over DP production). Domestic DP price was down 1% w/w to RMB 7,860/t ($ 1,128/t, a $ 218/t premium to imports). Huntai Juntai continues to produce DP, while Sun Paper has not switched back to DP yet.

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