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Insight | Time:Nov 14 2017 5:21PM
VSF price decline may slow down
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VSF market has witnessed a cliff-like drop since mid-Oct and the price has shed by around 1,400yuan/mt or 8.65% in one month, which is the largest monthly decline since financial crisis.

VSF price may drop slower by slumping for one month, which is mainly attributed to the following two concerns.

1. Cost support

Dissolving pulp price has kept firm and increased slightly on hiking paper pulp since the beginning of Oct. However, processing costs have hiked on rising caustic soda and carbon disulfide prices, with the increment averaging at 1,000yuan/mt, despite divergences in different areas.

The net profit is around -800yuan/mt in average at present and losses of VSF producers in East China are much deeper. Cash flow of some company with higher cost is already in negative territory.

Cost cannot decide price trend, but when price is below cost line especially when cash flow is in negative territory, price decline will obviously slow down. Meanwhile, production cut could be caused to influence supply-demand relationship.

2. Restocking amid rigid demand
The demand for VSF has been dreary in the recent month because spinners had excess restocking when VSF price was rising before. However, the purchasing volume reduced much after the expectation changed in Oct. Although VSF consumption decreases due to conversion of some spinners, it can largely keep more than 80% of total volume before.

The inventory of most spinners has recovered to normal or even lower level after one-month absorption, but purchasing volume will get close to actual consumption in order to maintain production and the demand for VSF is expected to improve versus Oct.

The above-mentioned factors may lead to slower VSF price decline or even cause speculation of some companies. The mid-to-short term procurement strategy of spinners may be more open than that of Oct. However, huge capacities of VSF are scheduled to start up and supply-demand relationship is still the decisive factor of market trend for the next stage, so buyers can rationally arrange procurement based on demand.
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