Can VFY be worth expecting in H2 2021?

VSF price kept falling since May after edging up. In the first quarter, the price gained ground by around 1,000yuan/mt driven by bullish news like vaccines and stronger textiles amid the expectation for economic and demand recovery. However, a new wave of the COVID-19 abroad led to sharp decline of demand in the second quarter, so VFY market kept weakening. By the end of June, the offer of bright VFY 120D decreased by 2.54% from 35,400yuan/mt to 34,500yuan/mt. Driven by rising prices of other products, VFY producers gradually raised offers since early-to-mid Jul.

VFY export performance in the first quarter of 2021 was outstanding and the monthly export had hit a decade high. In the first half of 2021, VFY export of China totaled 41.854kt, up 78% year on year. The compensational releasing of demand generally bolstered the optimism of consumption market abroad. The export in the second quarter gradually started to resume to average level of past years. Based on the expectation of largely stable demand in the second half of year, VFY export of China in 2021 is likely to recover to pre-epidemic level, which may stay around 66kt.

The resurgence of the COVID-19 cases and trading incidents has eroded market confidence, but the overall expectation is still recovering. VFY demand of China in 2021 may be hard to recover to pre-epidemic level, while export market is still worth expecting, so the market may be still supported by the demand.

However, VFY plants are under bigger pressure of having losses in 2021 because pulp and other materials are easier to rise than to drop and VFY price suppressed by high inventory may be hard to perform well. The contradiction between VFY supply and demand in 2021 is expected to sustain. Coupled with huge stockpiles weighing on market situation, capital and attitude of VFY companies as well as meager profits, VFY industry may be still challenging.