Downstream sectors will step into the traditional off-season in Jun, pointing to muted trading activity. VSF plants have priced in this seasonal slowdown. Most Jun output has been pre-sold and producers run low on inventory, supporting a price-stabilization strategy to weather the off-season.
Viscose staple fiber (VSF) stayed in a prosperous uptrend with climbing price in May. The market staged robust performance in H1 of the month, with most VSF producers lifting the quotations after the May Day holiday. Downstream sectors, however, lagged behind upstream gains. Neither spun yarn nor non-woven fabric posted notable price hikes. VSF prices largely held steady at prior levels throughout H2 of the month, ranging within 14,000-14,300yuan/mt. Downstream yarn orders shrank gradually, cooling bullish market sentiment. End-users held abundant pending VSF orders and prioritized order fulfillment, resulting in a marked drop in fresh business. Despite weaker new sales, unplanned maintenance at several VSF plants tightened supply temporarily. Robust downstream contract implementation further drained inventories, leaving producers free of operational pressure and focused on firming prices while delivering existing orders.
VSF production costs trended moderately higher across May. Chinese dissolving pulp mills ran with high operating rates. A recent rebound in domestic wood chip prices partially drove up manufacturing costs for dissolving pulp. Pulp mills are fully booked with outstanding orders and concentrate on order fulfilment. Among chemical materials, carbon disulfide kept rising alongside climbing sulfuric acid prices, lending underlying support to VSF price resilience.
Fiber quotations marched upward in H1 of May, pushing theoretical VSF profits higher to 360yuan/mt. Fiber prices flattened in H2 of the month, yet pulp and carbon disulfide costs kept rising, squeezing theoretical profits down to 230yuan/mt by month-end. Actual operating margins varied widely across individual manufacturers.
China's VSF exports remained robust recently, with multiple drivers lifting export prices. High ocean freight rates and RMB appreciation against the US dollar pushed up USD-denominated offers. Tight domestic supply further emboldened sellers to hike prices during export negotiations. FOB prices held above $1.86/kg, with actual prices finalized per individual firm orders. Overseas demand stayed healthy. Cumulative exports of VSF under HS Code 550410 reached 70,825 tons in the first four months of the year, rising 4.64% year-on-year.
While VSF prices trended upward, downstream yarns faced mounting resistance to follow the price hike, and high-priced lots saw scarce transactions. Modal products stood out as the bright spot amid a muted market. New order intake for rayon yarn slowed recently. Finished goods inventory edged up but only by roughly one day on the back of outstanding order backlogs, staying at historically low levels overall. Even if market sentiment stays sluggish in Jun with fewer previously signed orders and accelerated inventory build-up, current stock levels are insufficient to trigger production cuts at mills, though discount promotions may be unavoidable.
Domestic rayon yarn market was lukewarm, whereas exports posted outstanding performance. Customs statistics recorded Apr rayon yarn exports at 13,337 tons, topping 10kt for the first time in seven months, jumping 90% YoY and 107% MoM. Total exports over Jan-Apr hit 35,026 tons, a 27% year-on-year increase. Shipments to Pakistan hit an all-time monthly high, largely driven by recovering downstream garment orders, climbing loom operating rates and destocked raw material inventories among local weavers triggering concentrated restocking demand.
Downstream sectors will step into the traditional off-season in Jun, pointing to muted trading activity. VSF plants have priced in this seasonal slowdown. Most Jun output has been pre-sold and producers run low on inventory, supporting a price-stabilization strategy to weather the off-season. Downstream prosperity softened from prior months with limited positives in rayon yarn and mild inventory accumulation at spinners across different product grades. Vortex spun yarn faced price downside while compact siro-spun, siro-spun and ring-spun yarns kept steady. Rayon fabric market slipped into off-season doldrums and fabric mills are eager to clear stocks with most market participants bearish on future prices.