How to respond to rising cost of rayon yarn?

Rising prices of energy and chemicals in 2021 seems to keep influencing the market this year. Take rayon yarn for example, excluding VSF as the key raw material, the production cost of spinners has generally increased by almost 9% year on year.

The growth is mainly contributed by electricity and labor that respectively occupy about 1/3 of total production cost. The price of electricity had generally climbed up to 0.7yuan/kWh by the end of 2021 and now there is even further increase of 10%, so the production cost of yarn is reflected to have gained 300-400yuan/mt from the end of last year till now. The salary of employees have also risen by 10% in average based on incomplete statistics, adding 100yuan/mt in rayon yarn cost. The increment of nearly 500yuan/mt is rarely seen for years when other items generally keep stable, but the growth of production cost is still smaller than the fluctuation of raw materials, so it is not a big issue for the spinners to transfer or absorb the increase.

At present, most spinners still keep feedstock inventory for about one-month consumption and they are replenishing some stocks at 13,000yuan/mt or above recently, but the purchasing volume is not large because yarn price has not followed up and spinners may suffer losses when the production cost keeps advancing after the Chinese Lunar New Year.

Spinners are not under big inventory pressure supported by orders signed before the holiday and they still maintain good profits currently, but there were more worries over stockpiles due to fewer orders signed after the Chinese Lunar New Year, so they are not decisive in price rise.

Summer fabric is generally the hotspot after the Chinese Lunar New Year, but most companies reflect fewer orders than expected due to lower temperature. Since the weather is getting warming these days, the demand for high-count yarn can be expected in China local market. In export market, the regional conflicts have pushed up energy prices and the living cost will be inevitably rising in some countries, so whether the exports can get improvement still needs observation when good and daily necessities are given priority now.