Can VFY market maintain a sound momentum?

VFY price of China generally kept uptrend in the first five months of 2022. The price was largely stable at the beginning of the year. In Jan, the production was largely stable without big impact of the Winter Olympics, while sales slowed down with the coming Chinese Lunar New Year holiday and logistics also suspended accordingly. Both VFY and downstream plants focused on withdrawal of capital, so trades were thin and prices saw no big volatility.

The trading mood was gradually warming after in Feb and goods were delivered again after logistics resumed. Chinese market reopened later, especially Suzhou where was affected by the resurgence of COVID-19. However, prices of most textiles in early 2022 and VFY plants also adjusted up offers by 1,000yuan/mt. At the same time, pulp, chemicals and energy prices also climbed up, so VFY companies could obtain gross profits.

There was obvious influence from the COVID-19 in Mar, especially bigger impact on the operating rate of Jilin Chemical Fiber, thus the run rate of VFY industry also dropped below 60%. VFY plants under the pressure of suffering losses resulting from continued rising prices of raw materials further raised offers by 1,000yuan/mt. The uptrend was ongoing in Apr when Jilin Chemical Fiber restarted production since late Apr and had almost resumed normal operation by mid-May. With the faster delivery of goods in China, the inventory has fallen to around 2-month level.

Raw material still keep strong and VFY plants are actively pushing up the trading prices. Sales in China local market generally keep mild, but there is support from export orders with higher price versus domestic one. In Jan-Apr, China totally exports 35kt of VFY, up 7% year on year and the export volume of Mar even exceeds 10kt.

Due to the support from raw materials and overseas demand, VFY price is expected to further move up in the short term and the uptrend may be ongoing before the end of Jun.