Could rayon yarn set to shine in H2 of the year?

Recently, market feedback continues to indicate slow sales, but yarn inventories have not accumulated rapidly. In addition to the support from demand, changes in production by the spinners have played a significant role.

Vortex-spun yarn:

In recent years, a considerable proportion of companies have been continuously increasing their production of polyester yarn and polyester/rayon yarn, and this trend is ongoing. The proportion of rayon yarn production has dropped to 30% or even lower for some companies. VSF accounts for less than 40% of the procurement, and lyocell yarn has increased this year, relieving the sales pressure of 100% rayon yarn. In addition, there was support from foreign trade orders in Jun. Although the quantity has decreased compared to previous years, it still provided some temporary relief.

Open-end yarn:

The feedback from the demand side indicates that both the export and sales in China local market are moderate, with potential improvement in the second half of the year. The supply reduction is becoming more pronounced. Currently, there are less than ten 100% rayon yarn producers in East China with less than 100 sets of machines. In Xinjiang, nearly 20% of the 500 machines are idled. In addition to that, some capacity is utilized for in-house consumption and production conversion. As a result, the actual production of 100% open-end rayon yarn is much lower than before. This is also one of the factors contributing to the prolonged comparable pricing of open-end yarn with vortex-spun yarn in recent years.

Compact-siro spun and siro-spun yarn:

In the first half of the year, the prices of high-count yarns (40 or above) have risen, demonstrating excellent performance. The main reasons are the poor market conditions in the previous years, competition from substitute vortex-spun yarns, factory losses, and inventory pressure, which led to production reduction and conversion. The decline in supply coincided with a sudden surge in demand in the previous months, resulting in exceptionally high demand. A similar situation can be observed in recent months with high-twist yarns. Insufficient stock levels at various stages, combined with low production efficiency and the inability of supply to keep up has led to supply shortage when orders are released. Although sales have gradually slowed down in the mid-year, the low inventory foundation provides companies with more buffer space for the future.

Ring-spun yarn:

This is currently the variety with the greatest pressure, not only in terms of profitability but also due to relatively high inventory. According to a sampling survey, nearly half of the industry's inventory is contributed by ring-spun yarn. As the variety with the most stable trend and the most dispersed production, ring-spun yarn seems to always lag behind in its response. Export performance has not been particularly outstanding, relying on steady restocking demand from weaving mills. As of now, the spinners have not shown particularly active production conversion, and production reduction has only begun to appear in certain areas in Jun.

Entering the third quarter, with the expectation of high temperature and slack season, it is anticipated that the reduction in production by weaving mills will gradually increase. If the demand outside China does not warm up, it will be necessary to reduce yarn output as well in order to continue controlling the inventory.