When to halt and reverse the loss by VSF companies?

VSF plants gradually released new offers last Wednesday, generally falling to 13,100-13,400yuan/mt and trading prices were around 13,000yuan/mt. Some customers could still have discounts according to difference purchasing terms or quantities.

VSF price has been falling in fluctuation after reaching the peak in Jun, and the decline has reached 2,300yuan/mt. However, the cost mainly bolstered by dissolving pulp and exchange rate remains high, leading to the widening theoretical loss of VSF that has reached 2,023yuan/mt by the end of Oct (calculated by the price of medium-grade VSF), close to the historical high level. The price cut has caused higher price of medium-grade VSF than high-end one, thus another loss of 100-200yuan/mt will be added if calculating by the price of high-grade one.

Since 2018, the loss of VSF has become the normalcy, except for a period of continuous profit during Jan-May 2021, but the market has entered a state of continuous losses since then. Therefore, VSF companies are under extremely great pressure, especially the ones with poor cost control capabilities. In this context, there is bigger fluctuation of the operating rate. Although there are additional factors such as epidemic and power rationing, huge losses and weak demand are still the major regions. The operating rate of VSF industry hit new lows of 51% at the beginning of Sep this year.

Some companies are overwhelmed due to long-term losses, some have quit withdrawn from the industry and some have been running with low operating rates, so the pattern of viscose industry has been changing in recent years. The concentration of the capacity of leading companies has become increasingly higher, as well as the output. It can also be seen from the higher price of medium-grade than high-grade VSF that the competition among enterprises has intensified in the context of weak demand, which may continue in the future.