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Insight | Time:Dec 28 2017 3:15PM
Knock-on effect on rayon yarn limited
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VSF price bottomed out recently, and rebounded slightly as supply was curbed with some plants under maintenance. The prices of high end and medium grade VSF increased by 100-300yuan/mt, and low-priced offers ceased. Some deals were done at higher prices, and the bearish sentiment in the market was neutralized somewhat. Under this circumstance, downstream rayon yarn edged up in tandem regionally, but the knock-on effect on rayon yarn price was not very strong.

Rayon yarn market did not chase the rise in feedstock VSF like how it usually did. It was true that many yarn plants increased their VSF stocks, but it was not aggressive. VSF stocks were kept in yarn plants to maintain operation for only half a month. Most yarn producers preferred to way back on sideline to observe VSF market before the Lunar New Year in the anticipation of price cuts, saying that current time and price was not ripe for procurement.

The offtaking of rayon yarn improved. After yarn plants kept product inventory at less than one month but more than half a month for a while, the inventory of rayon yarn like ring-spun R30S for knitting reduced. Sales of core spun yarn did not increase as the peak season had come to an end.

The gains in rayon yarn price was not obvious. Though producers in Jiangsu, Fujian and Xinjiang raised offers by 200-300yuan/mt, transaction on the high side was limited. Ring-spun R30S for knitting, for example, saw lackluster transaction when the offers were lifted higher by 100-200yuan/mt. Most producers preferred to offload products and reduce inventory toward the year-end.

The knock-on effect on rayon fabric was even smaller. Usually, a 500yuan/mt hike in feedstock could arouse a 0.5yuan/m rise in fabric price, therefore, the current effect was imperceptible. Some rayon fabric plants said that there was indeed an increase in orders from downstream customers who were mainly booking products for next spring/summer season. However, dyeing plants were unwilling to accept the orders if there was not enough time to deliver the products ahead of Lunar New Year holiday which would begin in early Feb. As for the orders for products to be delivered after the holiday, fabric plants needed to wait until Jan to buy feedstock for production.

In a conclusion, VSF market is recovering recently, but downstream rayon yarn participants are prudent. The concerns over price spikes in feedstock is alleviated, and yarn producers do not rush into buying. The fever in stacking up feedstock in last years is unlikely to replicate this year, and rayon yarn market is adapting the new changes.
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