Inappropriate time for pure spun rayon yarn?

Cotton price rose above 16,000yuan/mt and PSF was also higher at 6,500-7,000yuan/mt. At the same time, the profit of the corresponding yarns performed much better than that of rayon yarn because the former was supported by the expectation of supply affected by cotton production cut and the latter was bolstered by demand. As for VSF, the price falling to 13,800yuan/mt still failed to entice buyers and both fibers and yarns were under the pressure of having losses. Vortex-spun yarn was even undersold again recently.

Cotton and PSF end-user products are mainly consumed in China local market and there is support from orders even in May, especially cotton yarn that has been underpinned by home textiles since the COVID-19 outbreak, with good demand both at home and abroad. On the contrary, rayon yarn highly depends on exports. The direct export of vortex-spun yarn and major markets of grey fabric made from ring-spun yarn and open-end yarn are concentrated in countries of Asia, Africa, Europe and US. The demand from Europe and US is worth expecting with the improvement of the pandemic, but export orders will usually release in the third quarter and half of the second quarter has just passed.

There used to be expectation for the possibility of order transfer from India due to the impact of the COVID-19 on local textile operating rates, but as far as we know, there are still good demand in textile enterprises in Southeast Asia without great impact of run rate.

Will the widening spread between cotton and VSF entice the transfer of some demand? It can be seen from the chart above that the price gap is around 2,300yuan/mt at present, with the peaking at 4,000yuan/mt in 2020. If the difference continues to enlarge, VSF may attract more buyers, but the increment may be limited. According to orders and profitability, downstream companies are more likely to use a few ones as substitutes.

It is reflected that pure spun rayon yarn entice few buyers at present and the conversion is still increasing. Colored yarn and core-spun yarn are relatively popular varieties on the market. The current stabilization is expected to sustain in the short term and the market boom still relies on more attractive prices or better demand.